Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 12

Theory of Constraints Research Equipment Inc. (REC) is a small manufacturer of precision tools used to construct research equipment for engineering departments at colleges and universities. It sells its two main products, REC-1 and REC-2, for $450 and $600, respectively. Due to increasing demand and shortage of specialized labor, REC has found it increasingly difficult to meet the current weekly demand of 100 units of REC-1 and 60 units of REC-2. The following flow diagram shows the manufacturing requirements for the two products and the three types of materials required. Material A is used in REC-1 only, Material C is used in REC-2 only, and Material B is used in both REC-1 and REC-2.

The amount of weekly labor available for the four manufacturing operations follows:

Receiving and testing materials: 6,000 minutes Machining (for Material A only): 10,000 minutes Assembly: 5,000 minutes Finishing: 10,000 minutes

Assume that the labor for each operation is specialized and cannot be moved from one activity to another, that all operations except receiving and testing require a high level of skill, and that REC cannot increase the capacity on these operations in the short run.

Required What is the best production plan for REC? Why?