PROBLEM 2. THEORY OF CONSTRAINTS

Problem Information

Lanai Outdoor Furniture (LOF) manufactures high-quality patio tables, offered in both Teak and Koa. The demand for the tables is 850 units for the Teak table and 1,500 for the Koa table. The tables are priced at $495 and $995 for the Teak and Koa tables, respectively. The materials cost is $250 for the Teak table and $435 for the Koa table; direct labor and operating expenses total $500,000 and $250,000, respectively.

In addition, LOF has the following manufacturing information for the four manufacturing processes (preparation, assembly, finishing, and packaging/shipping), showing the amount of time (in minutes) required for each table for each process, and the total minutes of time available for each process.

	Time Required/unit			Time
Process	Teak	Koa		Available
Preparation	25	50	100,000
Assembly	100	250	400,000
Finishing	80	120	250,000
Packaging and Shipping	60	40	120,000

Required: Use the Excel worksheet provided with the exam to provide support for answering the following questions. Be sure to write your answers in the boxes below each question.

1. Which process(es), if any, are constraints for the current level of demand?

2. What is the Throughput Margin for each of the tables (per unit of product AND per unit of constraint)?

Teak

Koa

3. Given any constraints identified in part (1) above, determine the best production and sales plan for the two types of tables.

4. What is the Operating Income from the production plan you determined in part (3) above?

	Teak	Koa
SP	$ 495.00	$ 995.00
Materials Cost	$ (250.00)	$ (435.00)
Direct Labor (Total)	$ 500,000
Operating Expenses (Total)	$ 250,000
Demand (in units)	850	1,500
	Teak	Koa	Time Available
Preparation	25	50	100,000
Assembly	100	250	400,000
Finishing	80	120	250,000
Packaging and Shipping	50	50	120,000