Question

Atlas Inc. is a toy bicycle manufacturing company producing a five-inch small version of the bike that Lance Armstrong rode to win his first Tour de France. The assembly line at Atlas Inc. consists of seven work stations, each performing a single step. Stations and processing times are summarized here:

Step 1 (30 sec.): The plastic tube for the frame is cut to size.

Step 2 (20 sec.): The tube is put together.

Step 3 (35 sec.): The frame is glued together.

Step 4 (25 sec.): The frame is cleaned.

Step 5 (30 sec.): Paint is sprayed onto the frame.

Step 6 (45 sec.): Wheels are assembled.

Step 7 (40 sec.): All other parts are assembled to the frame.

Under the current process layout, workers are allocated to the stations as shown here:

Worker 1: Steps 1 and 2

Worker 2: Steps 3 and 4

Worker 3: Step 5

Worker 4: Step 6

Worker 5: Step 7

Assume the workers are paid $15 per hour. Each bicycle is sold for $6 and includes parts that are sourced for $1. The company has fixed costs of $200 per hour. Despite Lance Armstrong’s doping confession, there exists substantially more demand for the bicycle than Atlas can supply.

Instructions: Round all answers to 2 decimal places. a. What is the cost of direct labor for the bicycle? per unit b. How much profit does the company make per hour? per hour c. What would be the profits per hour if Atlas would be able to source the parts 10 percent cheaper ($0.90 for the parts of one unit)? per hour d. What would be the profits per hour if Atlas were able to reduce fixed costs by 10 percent (to $180 per hour)? per hour e. What would be the profits per hour if Atlas were able to reduce the processing time at the bottleneck by 5 seconds per unit (assume unlimited demand)? per hour

Answer 1

sosed Totor strat Step1 - 30sec I worker 1 Step 2 - 20sec Step 3 - 35suz Step 4 - assect "I workers & bosec Worker fees = $15/hr tep5-30 sec workers zoser selling price: $6/unit stept - 45 sec worker 4 - ussee parts 41 per unit Step 7-40sec workers uose Fixed cost = $200/hr Capacity of Hu production linu in finished unitsin Procusing capacity - Min & capacity} stan. for WI= I for w2 = 12 7 23 = 1 want us wuauis wr= 1 to aning of flence, we is the bottleneck in this process. (smal capaelty Capacity in 1 hour= I x360 - 60 units ar @ Cost of direct labor (unita? Who total cost of direct labor/hr = 1555 = $75/ur cost of direct labor/unit = wages per hour production per hour 2 7 5 $1.25 per imit 6 total cost to company in an hom the Fixed cost & Labor cost + parts cost & 200 + 75+60 - $335 per hour total sales = $6X60 = $360 per hour protit/hour - 360-335 25 per hour.

@ lf parts cost is reduced to 40.goper unit fixedo total cost reduces by $6 to Hence total cost 200+75+54 look 454 Equine gate - 4 329 per hour = $ 329 per Total sales = $360 per hour woonchote Profit/her 360-329 831 per hour when fixed cost is reduced to 4180, the total cost also reduces by $20 ans New fixed costa $315 per hour = (335-20) total sales = $360 per hour Protit/hr = 360-315 845 /hour @ if we reduce the bottleneck time by 5 secondslunit s New capacity: 135 art & not to go capacity tax 3600 65.45 ~ 65 units Total cost for one hour FC + L ct parts cost Sou o put = 200+ 75+ 65 cotton = $ 340 , Total sales $64 65 = $3900 Profit hr. 390-340 etnog - $50/her heslo trasban

The parts are solved in the above-handwritten document in a step by step process. All the calculations are shown as done in the solution.

Bottleneck situation - It arises when there are Work-in-progress products left before a process to be completed. In this case, Since worker 2 takes more time than other workers, It is the bottleneck situation. Hence, the total capacity of the plant will be calculated by it.