Evaluate 10.2 Problem 4
The senior management at Canine Kernels Company (CKC) is concerned with the existing capacity limitation, so they want to accept the mix of orders that maximizes the company’s profits. Traditionally, CKC has utilized a method whereby decisions are made to produce as much of the product with the highest contribution margin as possible (up to the limit of its demand), followed by the next highest contribution margin product, and so on until no more capacity is available. Because capacity is limited, choosing the proper product mix is crucial. Troy Hendrix, the newly hired production supervisor, is an avid follower of the theory of constraints philosophy and the bottleneck method for scheduling. He believes that profitability can indeed be approved if bottleneck resources are exploited to determine the product mix.
a. What is the profit if the traditional contribution margin method is used for determining CKC’s product mix?
b. What is the profit if the bottleneck method advocated by Troy is used for selecting the product mix?
c. Calculate the profit gain, both in absolute dollars as well as in terms of percentage gains, by using TOC principles for determining product mix.
problem 4
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Sheet1
| Solution | |||
| A | Traditional Method | ||
| A | xB | ||
| Price | x$55.00 | $65.00 | |
| xxx xxxxxxxx & Purchased xxxxx | $5.00 | x$10.00 | |
| xxxxxxxxxxxx Margin | $50.00 | xxxxxx | |
| xxxxxxxxxxxx margin per xxxx xxxxxxxx xx these xxxxxxxx xx xx xx | |||
| Allocate resources X, xx xxx x xx the xxxxxxxx in the xxxxx xxxxxxx | |||
| xxxx xxxxxx | xxxxxxx at xxxxx | xxxxxxxx xxxx xxxxx making 85 x | xCan only xxxx 70 x |
| x | xxxx | 1210 | x510 |
| X | xxxx | 700 | 0 |
| Y | xxxxx | xxxxx | x415 |
| xxxxxxx Product xxx under bottle-neck method is 85 units of B xxx 70 xxxxx of A | |||
| xxxxxxx xxxxx | |||
| xxxxxxx | x$9,375.00 | ||
| xxxxxxxx | xxxxxxxxx | ||
| Labour | x$720.00 | ||
| xxxxxxxx | x$3,500.00 | ||
| xxxxxx | $3,955.00 | xxxxxxxx xxxxxx | |
| x | Bottle Neck Method | ||
| xxxxxxxxxxx Bottleneck xxxxxxx | |||
| xxxx From A | xLoad From B | xxxxxx Load | |
| x | xxxx | 1190 | xxxxx |
| X | x900 | x1700 | xxxx |
| x | xxxxx | 935 | 2285 |
| These xxxxxxxxxxxx xxxx that workstation x is xxx xxxxxxxxxxx because the xxxxxxxxx xxxx xxxx at X xxxxxxx the xxxxxxxxx xxxxxxxx xx 2,400 minutes xxx week | |||
| x | xB | ||
| xxxxxxxxxxxx xxxxxx | xxxxxxx | x$55.00 | |
| Time xx BottleNeck | 10min | x20min | |
| xxxxxxxxxxxx Margin xxx minute | x | x2.75 | |
| When xxxxxxx xxxx highest to lowest contribution margin/ xxxxxx at xxx xxxxxxxxxxx xxx manufacturing xxxxxxxx of these xxxxxxxx xx xx xx xxxxx xx reverse xx xxx earlier xxxxx | |||
| xxxx Centre | xMinutes at Start | xxxxxxxx left xxxxx making xx A | xCan xxxx xxxx xx - - - more text follows - - - |
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