QUESTION 3

Chimusoro Co is involved in the processing of sheet metal into products A, B and C using three processes, pressing, stretching and rolling. Like many businesses Chimusoro faces tough price competition in what is a mature world market.

The factory has 50 production lines each of which contain the three processes: Raw material for the sheet metal is first pressed then stretched and finally rolled. The processing capacity varies for each process and the factory manager has provided the following data:

Processing time per meter in hours

Product AProduct BProduct C

Pressing

050

050

040

Stretching

025

040

025

Rolling

040

025

025

The factory operates for 18 hours each day for five days per week. It is closed for only two weeks of the year for holidays when maintenance is carried out. On average one hour of labour is needed for each of the 225,000 hours of factory time. Labour is paid $10 per hour.

The raw materials cost per meter is $300 for product A, $250 for product B and $180 for product C. Other factory costs (excluding labour and raw materials) are $18,000,000 per year. Selling prices per meter are $70 for product A, $60 for product B and $27 for product C.

Chimusoro carries very little inventory.

REQUIRED:

(a)Identify the bottleneck process and briefly explain why this process is described as a

'bottleneck'.(3 marks)

(b)Calculate the throughput accounting ratio (TPAR) for each product assuming that

the bottleneck process is fully utilized.(13 marks)

(c)Assuming that the TPAR of product C is less than 1:

(i)Explain how Chimusoro could improve the TPAR of product C. (4 marks)

(ii)Briefly discuss whether this supports the suggestion to cease the production of product C and briefly outline three other factors that Chimusoro should consider

before a cessation decision is taken. (5 marks)

[Total: 25 marks]