7-2 FIVE STAR TOOLS
James Jiambalvo – Chapter 7 Case 2
Submitted by: K Greene
Five Star Tools is a small family-owned business that manufactures diamond-coated cutting tools (chisels and saws) used by jewelers. The production of these tools involves three major processes. The first of these processes involves steel “blanks” (tools without the diamond coating) that are cut to size. The second process involves the blanks being sent to a chemical bath that prepares the tools for the coating process. The final process is the major process in the line. The blanks are coated with diamond chips in a proprietary process that simultaneously coats and sharpens…show more content… C. Focusing only on the Model C210 chisel and the model D400 chisel, what would be the benefit to the firm of gaining one more hour of production time in coating and sharpening?
The benefit of gaining one more hrs of production time in coating and sharpening is illustrated in the contribution margin per hr.
Contribution margin per hour $1,250 ($250*5) $537.50 (430*1.25)
D. Based on this information (see Jiambalvo page 295), estimate the incremental profit per year associated with adding the new inspection station.
Management estimates that this action will free up 240 hrs in coating and sharpening (an average of 5 mins/hr * 8 hrs /day*360 operating days/yr)/60. Management has calculated the average contribution margin per unit for its products is $300. The average contribution margin per/hr spent coating and sharpening is $850.
Since the average contribution margin /hr spent sharpening and coating is $850 and the inspection station would save 240hrs. The company would generate $850*240 = $204,000 in profits.
Maxfield Turner has options available to him and he now has figures to make an informed decision. He can choose to install the inspection station which shows him the incremental cost and profit associated with that decision. He may also opt to