Speed Dress Manufacturing has two work stations, cutting and finishing. The cutting station is limited by the speed of operating the cutting machine. Finishing normally waits for work from cutting. Each department works an eight-hour day. If cutting begins work two hours earlier than finishing each day, the two departments generally finish their work at about the same time. Not only does this eliminate the bottleneck, but it also increases finished units produced each day by 160 units. All units produced can be sold even though the change increases inventory stock by 20% from 400 units. The cost of operating the cutting department two more hours each day is $1,600. The contribution margin of the finished product is $6 each. Inventory carrying costs are $.40 per unit per day.
a) If the change is made, what will the total production per day be?
b) If the change is made, what will be change in the daily contribution margin be?
160 units / 2 hours = 80 units per hour ...
The expert computes total production per day and contribution margin.