Operations and Supply Chain Management The Core

200 OPERATIONS AND SUPPLY CHAIN MANAGEMENT
Solution
The cost of the current process over the next two years is just the cost of the four full-time
employees.
​$52,000 / employee × 4 employees × 2 years = $416,000​
The cost of the new process over the next two years, assuming the robot is completely costed over
that time, is
​($52,000 / material handler + $60,000 / technician) × 2 + $400,000 / robots − $0.25 × autos​
Equating the two alternatives
Solving for the break-even point
​$416,000 = $624,000 − $0.25 × autos​
​− $208,000 / − $0.25 = 832,000 autos​
This indicates that, to break even, 832,000 autos would need to be produced with the robots over
the next two years.
SOLVED PROBLEM 2
A contract manufacturer makes a product for a customer that consists of two items, a cable with
standard RCA connectors and a cable with a mini-plug, which are then packaged together as the
final product (each product sold contains one RCA and one mini-plug cable). The manufacturer
makes both cables on the same assembly line and can only make one type at a time: Either it can
make RCA cables or it can make mini-plug cables. There is a setup time when switching from one
cable to the other. The assembly line costs $500/hour to operate, and this rate is charged whether it
is being set up or actually making cables.
Current plans are to make 100 units of the RCA cable, then 100 units of the mini-plug
cable, then 100 units of the RCA cable, then 100 units of the mini-plug cable, and so on, where
the setup and run times for each cable are given below.
COMPONENT SETUP/CHANGEOVER TIME RUN TIME/UNIT
RCA cable 5 minutes 0.2 minute
Mini-plug cable 10 minutes 0.1 minute
Assume the packaging of the two cables is totally automated and takes only two seconds per
unit of the final product and is done as a separate step from the assembly line. Since the packaging
step is quick and the time required does not depend on the assembly-line batch size, its
cost does not vary and need not be considered in the analysis.
What is the average hourly output in terms of the number of units of packaged product
(which includes one RCA cable and one mini-plug cable)? What is the average cost per unit for
assembling the product? If the batch size were changed from 100 to 200 units, what would be
the impact on the assembly cost per unit?
Solution
The average hourly output rate when the batch size is 100 units is calculated by first calculating the
total time to produce a batch of cable. The time consists of the setup time plus the run time for a
batch
​5 + 10 + 0.2(100) +0.1(100) = 15 + 30 = 45 minutes / 100 units​