Pharmaco Corporation buys three chemicals that are processed to produce two popular ingredients for liquid pain relievers. The three chemicals are in liquid form. The purchased chemicals are blended for two to three hours and then heated for 15 minutes. The results of the process are two separate ingredients, PR1 and PR2. For every 4,300 gallons of chemicals used, 2,000 gallons of each pain reliever are produced. The pain relievers are sold to companies that process them into their final form. The selling prices are $34 per gallon for PR1 and $45 per gallon for PR2. The costs to produce one batch (containing 2,000 gallons of each chemical) are as follows: The pain relievers are bottled in five-gallon plastic containers and shipped. The cost of each container is $2.10. The costs of shipping are $0.50 per container. Pharmaco Corporation could process PR1 further by mixing it with inert powders and flavoring to form tablets. The tablets can be sold directly to retail drug stores as a generic brand. If this route is taken, the revenue received per case of tablets would be $13.50, with eight cases produced by every gallon of PR 1. The costs of processing into tablets total $11.00 per gallon of PR1. Packaging costs $5.16 per case. Shipping costs are $1.68 per case. Required: 1. Should Pharmaco sell PR1 at split-off, or should PR1 be processed and sold as tablets? 2. If Pharmaco normally sells 26,000 gallons of PR1 per year, what will be the difference in profits if PR1 is processed further?

Taylor Company produces two industrial cleansers that use the same liquid chemical input: Pocolimpio and Maslimpio. Pocolimpio uses two quarts of the chemical for every unit produced, and Maslimpio uses five quarts. Currently, Taylor has 6,000 quarts of the material in inventory. All of the material is imported. For the coming year, Taylor plans to import 6,000 quarts to produce 1,000 units of Pocolimpio and 2,000 units of Maslimpio. The detail of each products unit contribution margin is as follows: Taylor Company has received word that the source of the material has been shut down by embargo. Consequently, the company will not be able to import the 6,000 quarts it planned to use in the coming years production. There is no other source of the material. Required: 1. Compute the total contribution margin that the company would earn if it could import the 6,000 quarts of the material. 2. Determine the optimal usage of the companys inventory of 6,000 quarts of the material. Compute the total contribution margin for the product mix that you recommend. 3. Assume that Pocolimpio uses three direct labor hours for every unit produced and that Maslimpio uses two hours. A total of 6,000 direct labor hours is available for the coming year. a. Formulate the linear programming problem faced by Taylor Company. To do so, you must derive mathematical expressions for the objective function and for the materials and labor constraints. b. Solve the linear programming problem using the graphical approach. c. Compute the total contribution margin produced by the optimal mix.

Vollmer Manufacturing makes three components for sale to refrigeration companies. The components are processed on two machines: a shaper and a grinder. The times (in minutes) required on each machine are as follows: The shaper is available for 120 hours, and the grinder for 110 hours. No more than 200 units of component 3 can be sold, but up to 1,000 units of each of the other components can be sold. In fact, the company already has orders for 600 units of component 1 that must be satisfied. The profit contributions for components 1, 2, and 3 are 8, 6, and 9, respectively. a. Formulate and solve for the recommended production quantities. b. What are the objective coefficient ranges for the three components? Interpret these ranges for company management. c. What are the right-hand-side ranges? Interpret these ranges for company management. d. If more time could be made available on the grinder, how much would it be worth? e. If more units of component 3 can be sold by reducing the sales price by 4, should the company reduce the price?

Pratt Company produces two replacement parts for a popular line of Blu-ray disc players: Part A and Part B. Part A is made up of two components, one manufactured internally and one purchased from external suppliers. Part B is made up of three components, one manufactured internally and two purchased from suppliers. The company has two processes: fabrication and assembly. In fabrication, the internally produced components are made. Each component takes 20 minutes to produce. In assembly, it takes 30 minutes to assemble the components for Part A and 40 minutes to assemble the components for Part B. Pratt Company operates one shift per day. Each process employs 100 workers who each work eight hours per day. Part A earns a unit contribution margin of 20, and Part B earns a unit contribution margin of 24 (calculated as the difference between revenue and the cost of materials and energy). Pratt can sell all that it produces of either part. There are no other constraints. Pratt can add a second shift of either process. Although a second shift would work eight hours, there is no mandate that it employ the same number of workers. The labor cost per hour for fabrication is 15, and the labor cost per hour for assembly is 12. Required: 1. Identify the constraints facing Pratt, and graph them. How many binding constraints are possible? What is Pratts optimal product mix? What daily contribution margin is produced by this mix? 2. What is the drummer constraint? How much excess capacity does the other constraint have? Assume that a 1.5-day buffer inventory is needed to deal with any production interruptions. Describe the drum-buffer-rope concept using the Pratt data to illustrate the process. 3. Explain why the use of local labor efficiency measures will not work in Pratts TOC environment. 4. Suppose Pratt decides to elevate the binding constraint by adding a second shift of 50 workers (labor rates are the same as those of the first shift). Would elevation of Pratts binding constraint improve its system performance? Explain with supporting computations.

Ingles Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other institutions. The table tops are manufactured by Ingles, but the table legs are purchased from an outside supplier. The Assembly Department takes a manufactured table top and attaches the four purchased table legs. It takes 16 minutes of labor to assemble a table. The company follows a policy of producing enough tables to ensure that 40 percent of next months sales are in the finished goods inventory. Ingles also purchases sufficient materials to ensure that materials inventory is 60 percent of the following months scheduled production. Ingless sales budget in units for the next quarter is as follows: Ingless ending inventories in units for July 31 are as follows: Required: 1. Calculate the number of tables to be produced during August. 2. Disregarding your response to Requirement 1, assume the required production units for August and September are 2,100 and 1,900, respectively, and the July 31 materials inventory is 4,000 units. Compute the number of table legs to be purchased in August. 3. Assume that Ingles Corporation will produce 2,340 units in September. How many employees will be required for the Assembly Department in September? (Fractional employees are acceptable since employees can be hired on a part-time basis. Assume a 40-hour week and a 4-week month.) (CMA adapted)

Sell or Process Further Zanda Drug Corporation buys three chemicals that are processed to produce two types of analgesics used as ingredients for popular over-the-counter drugs. The purchased chemicals are blended for 2 to 3 hours and then heated for 15 minutes. The results of the process are two separate analgesics, depryl and pencol, which are sent to a drying room until their moisture content is reduced to 6 to 8%. For every 1,300 pounds of chemicals used, 600 pounds of depryl and 600 pounds of pencol are produced. After drying, depryl and pencol are sold to companies that process them into their final form. The selling prices are 12 per pound for depryl and 30 per pound for pencol. The costs to produce 600 pounds of each analgesic are as follows: The analgesics are packaged in 20-pound bags and shipped. The cost of each bag is 1.30. Shipping costs 0.10 per pound. Zanda could process depryl further by grinding it into a fine powder and then molding the powder into tablets. The tablets can be sold directly to retail drug stores as a generic brand. If this route were taken, the revenue received per bottle of tablets would be 4.00, with 10 bottles produced by every pound of depryl. The costs of grinding and tableting total 2.50 per pound of depryl. Bottles cost 0.40 each. Bottles are shipped in boxes that hold 25 bottles at a shipping cost of 1.60 per box. Required: 1. CONCEPTUAL CONNECTION Should Zanda sell depryl at split-off, or should depryl be processed and sold as tablets? 2. If Zanda normally sells 265,000 pounds of depryl per year, what will be the difference in profits if depryl is processed further?

Computador has a manufacturing plant in Des Moines that has the theoretical capability to produce 243,000 laptops per quarter but currently produces 91,125 units. The conversion cost per quarter is 7,290,000. There are 60,750 production hours available within the plant per quarter. In addition to the processing minutes per unit used, the production of the laptops uses 10 minutes of move time, 20 minutes of wait time, and 5 minutes of rework time. (All work is done by cell workers.) Required: 1. Compute the theoretical and actual velocities (per hour) and the theoretical and actual cycle times (minutes per unit produced). 2. Compute the ideal and actual amounts of conversion cost assigned per laptop. 3. Calculate MCE. How does MCE relate to the conversion cost per laptop?

Garden Labs produces a drug used for the treatment of arthritis. The drug is produced in batches. Chemicals costing $50,000 are mixed and heated, then a unique separation process extracts the drug from the mixture. A batch yields a total of 3,000 gallons of the chemicals. The first 2,500 gallons are sold for human use while the last 500 gallons, which contain impurities, are sold to veterinarians. The costs of mixing, heating, and extracting the drug amount to $155,000 per batch. The output sold for human use is pasteurized at a total cost of $130,000 and is sold for $600 per gallon. The product sold to veterinarians is irradiated at a cost of $20 per gallon and is sold for $450 per gallon. In March, Garden, which had no opening inventory, processed one batch of chemicals. It sold 2,000 gallons of product for human use and 300 gallons of the veterinarian product. Garden uses the net realizable value method for allocating joint production costs. Q. Compute the cost of ending inventory…

Garden Labs produces a drug used for the treatment of arthritis. The drug is produced in batches. Chemicals costing $50,000 are mixed and heated, then a unique separation process extracts the drug from the mixture. A batch yields a total of 3,000 gallons of the chemicals. The first 2,500 gallons are sold for human use while the last 500 gallons, which contain impurities, are sold to veterinarians. The costs of mixing, heating, and extracting the drug amount to $155,000 per batch. The output sold for human use is pasteurized at a total cost of $130,000 and is sold for $600 per gallon. The product sold to veterinarians is irradiated at a cost of $20 per gallon and is sold for $450 per gallon. In March, Garden, which had no opening inventory, processed one batch of chemicals. It sold 2,000 gallons of product for human use and 300 gallons of the veterinarian product. Garden uses the net realizable value method for allocating joint production costs. Q. How much in joint costs does Garden…

Garden Labs produces a drug used for the treatment of arthritis. The drug is produced in batches. Chemicals costing $50,000 are mixed and heated, then a unique separation process extracts the drug from the mixture. A batch yields a total of 3,000 gallons of the chemicals. The first 2,500 gallons are sold for human use while the last 500 gallons, which contain impurities, are sold to veterinarians. The costs of mixing, heating, and extracting the drug amount to $155,000 per batch. The output sold for human use is pasteurized at a total cost of $130,000 and is sold for $600 per gallon. The product sold to veterinarians is irradiated at a cost of $20 per gallon and is sold for $450 per gallon. In March, Garden, which had no opening inventory, processed one batch of chemicals. It sold 2,000 gallons of product for human use and 300 gallons of the veterinarian product. Garden uses the net realizable value method for allocating joint production costs. Q. Suppose that the separation process…

Sell or Process Further Pharmaco Corporation buys three chemicals that are processed to produce two popular ingredients for liquid pain relievers. The three chemicals are in liquid form. The purchased chemicals are blended for two to three hours and then heated for 15 minutes. The results of the process are two separate ingredients, PR1 and PR2. For every 4,300 gallons of chemicals used, 2,000 gallons of each pain reliever are produced. The pain relievers are sold to companies that process them into their final form. The selling prices are $34 per gallon for PR1 and $45 per gallon for PR2. The costs to produce one batch (containing 2,000 gallons of each chemical) are as follows: Chemicals $23,400 Direct labor 9,000 Catalyst 3,600 Overhead 8,000 The pain relievers are bottled in five-gallon plastic containers and shipped. The cost of each container is $2.10. The costs of shipping are $0.50 per container. Pharmaco Corporation could process PR1 further by mixing it with inert…

McKenzie’s Soap Sensations, Inc., produces hand soaps with three different scents: morning glory, snowflake sparkle, and sea breeze. The soap is produced through a joint production process that costs $30,000 per batch. Each batch produces 14,800 bottles of morning glory hand soap, 12,000 bottles of snowflake sparkle hand soap, and 10,000 bottles of sea breeze hand soap at the split-off point. Each product is processed further after the split-off point, but the market value of a bottle of any of the flavors at this point is estimated to be $1.25 per bottle. The additional processing costs of morning glory, snowflake sparkle, and sea breeze hand soap are $0.50, $0.55, and $0.60 per bottle, respectively. Morning glory, snowflake sparkle, and sea breeze hand soap are then sold for $2.00, $2.20, and $2.40 per bottle, respectively.Instructions1. Using the net realizable value method, allocate the joint costs of production to each product. 2. Explain why McKenzie’s Soap Sensations, Inc.,…

McKenzie’s Soap Sensations, Inc., produces hand soaps with three different scents: morning glory, snowflake sparkle, and sea breeze. The soap is produced through a joint production process that costs $30,000 per batch. Each batch produces 14,800 bottles of morning glory hand soap, 12,000 bottles of snowflake sparkle hand soap, and 10,000 bottles of sea breeze hand soap at the split-off point. Each product is processed further after the split-off point, but the market value of a bottle of any of the flavors at this point is estimated to be $1.25 per bottle. The additional processing costs of morning glory, snowflake sparkle, and sea breeze hand soap are $0.50, $0.55, and $0.60 per bottle, respectively. Morning glory, snowflake sparkle, and sea breeze hand soap are then sold for $2.00, $2.20, and $2.40 per bottle, respectively. 1. Using the net realizable value method, allocate the joint costs of production to each product. 2. Using the Market Value at Split Off Point Method, allocate…

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Chapter 17 Solutions