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# Product Pricing and Profit Analysis in Bottleneck Operations

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Atlas Steel Company produces three grades of steel: high, good, and regular grade. Each of these products (grades) has high demand in the market, and Atlas is able to sell as much as it can produce of all three. The furnace operation is a bottleneck in the process and is running at 100% of capacity. Atlas wants to improve steel operation profitability. The variable conversion cost is \$6 per process hour. The fixed cost is\$1,530,000. In addition, the cost analyst was able to determine the following information about the three products:

Budgeted units produced 6,000 6,000 6,000
Total process hours per unit 15 15 12
Furnace hours per unit 5 3 2
Unit selling price \$375 \$350 \$320
Direct materials cost per unit \$160 \$140 \$130

The furnace operation is part of the total process for each of these three products. Thus, for example, 5 of the 15 hours required to process High Grade steel are associated with the furnace.
Instructions:

Determine the unit contribution margin for each product.
Provide an analysis to determine the relative product profitabilities, assuming that the furnace is a bottleneck.
Assume that management wishes to improve profitability by increasing prices on selected products. At what price would High and Good grades need to be offered in order to produce the same relative profitability as Regular Grade Steel?

https://brainmass.com/math/algebra/product-pricing-and-profit-analysis-in-bottleneck-operations-555834

#### Solution Summary

The solution offers detailed discussion for Product Pricing and Profit Analysis with Bottleneck Operations.

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## Analysis

Develop an analysis essay to the leadership team reporting on the five topics listed below.
Answering discussion points by providing basic operational concepts presented within the course material.

Topic 1: Operations Consulting and Reengineering
- What is operational consulting?
- What are operational consulting processes?
- What is Business Process Engineering?

Topic 2: Lean and Sustainable Supply-Chains and Processes
- What is process analysis?
- What are process types?
- What is process flowcharting/mapping?
- What is the significance of Little's Law?

Topic 3: Location, Logistics, and Distribution
- What are the relationships between location, logistics and distribution?

Topic 4: Strategic Capacity Management
- What is strategic capacity management?
- What are the strategic capacity management concepts?
- What are the relationships between strategic capacity management planning and service capacities?

Topic 5: Summarization
- What are the overall connections between the topics presented through weeks one and two?
- What and how would you recommend applying the topics within your own or an external organization?

Assignment Quality Requirements
- Includes an active attempt to present the information in a clear, and concise manner
- Includes one or more supporting citations for each discussion point. The primary supporting citation must be from the course text, and or, course support documents.
- Includes external support citations from a minimum of two peer-reviewed journal articles less than 5-years old. The supporting article references satisfy the writing requirements for conducting research beyond the course material.

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