Tombro Industries is in the process of automating one of its plants and developing a flexible manufacturing system. The company is finding it necessary to make many changes in operating procedures. Progress has been slow, particularly in trying to develop new performance measures for the factory. In an effort to evaluate performance and determine where improvements can be made, management has gathered the following data relating to activities over the last four months: Month 3 1 2 4 95 195 56 112 173 49 106 134 40 89 37 68 10 days 9 days 28 28 7 days 38 5 days 6% Quality control measures: Number of defects Number of warranty claims Number of customer complaints Material control measures: Purchase order lead time IT Scrap as a percent of total cost ap Machine performance measures: Machine downtime as a percentage of availability Use as a percentage of availability Setup time (hours) Delivery performance measures: Throughput time Manufacturing cycle efficiency (MCE) Delivery cycle time Percentage of on-time deliveries S 3% 95% 10 4% 92% 12 48 898 13 6% 85% 14 ? ? ? ? ? 96% ? ? ? 95% ? ? ? 92% ? ? ? 89% The president has read in industry journals that throughput time, MCE, and delivery cycle time are important measures of performance, but no one is sure how they are computed. You have been asked to assist the company, and you have gathered the following data relating to these measures: Average per Month (in days) 2 3 1 4 Wait time per order before start of production Inspection time per unit Process time per unit Queue time per unit Move time per unit 9.0 0.8 2.8 4.1 0.3 10.8 0.7 2.7 4.4 0.4 12.0 0.7 2.6 6.3 0.4 14.0 0.7 1.1 8.6 0.6 Portsmouth Company makes upholstered furniture. Its only variable cost is direct materials. The demand for the company's products far exceeds its manufacturing capacity. The bottleneck (or constraint) in the production process is upholstery labor-hours. Information concerning three of Portsmouth's products appears below: Selling price per unit Variable cost per unit Upholstery labor-hours per unit Recliner $ 1,400 $ 800 8 hours Sofa $ 1,800 $ 1,200 10 hours Love Seat $ 1,500 $ 1,000 5 hours Required: 1. Portsmouth is considering paying its upholstery laborers hourly compensation, in addition to their usual salaries, to work overtime. Assuming that this extra time would be used to produce sofas, up to how much of an overtime rate per hour should the company be willing to pay to keep the upholstery shop open after normal working hours? 2. A small nearby upholstering company has offered to upholster furniture for Portsmouth at a price of $45 per hour. The management of Portsmouth is confident that this upholstering company's work is high quality and their craftsmen can work as quickly as Portsmouth's own craftsmen on the simpler upholstering jobs such as the Love Seat. How much additional contribution margin per hour can Portsmouth earn if it hires the nearby upholstering company to make Love Seats? 3. Should Portsmouth hire the nearby upholstering company? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Portsmouth is considering paying its upholstery laborers hourly compensation, in addition to their usual salaries, to work overtime. Assuming that this extra time would be used to produce sofas, up to how much of an overtime rate per hour should the company be willing to pay to keep the upholstery shop open after normal working hours? Show less Maximum overtime rate per hour
