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

Exercise 13

Theory of Constraints; Strategy Colton Furniture Co. is a small but fast-growing manufacturer of living room furniture. Its two principal products are end tables and sofas. The flow diagram for the manufacturing at Colton follows. Colton’s manufacturing involves five processes: cutting the lumber, cutting the fabric, sanding, staining, and assembly. One employee cuts fabric and two do the staining. These are relatively skilled workers who could be replaced only with some difficulty. Two workers cut the lumber, and two others perform the sanding operation. There is some skill to these operations, but it is less critical than for staining and fabric cutting. Assembly requires the lowest skill level and is currently done by one full-time employee and a group of part timers who provide a total of 175 hours of working time per week. The other employees work a 40-hour week, with 5 hours off for breaks, training, and personal time. Assume a four-week month and that by prior agreement, none of the employees can be switched from one task to another. The current demand for Colton’s products and sales prices are as follows, although Colton expects demand to increase significantly in the coming months if it is able to successfully negotiate an order from a motel chain.

	End Tables	Sofas
Price	$250	$450
Current demand (units per month)	400	150

Required

1. What is the most profitable production plan for Colton? Explain your answer with supporting calculations.

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2. How would you apply the five steps of the theory of constraints to Colton’s manufacturing operations? What would you recommend for each step?

Step 1 of 9

Theory of constraints is a management methodology that views those doable systems which are restricted in gaining more of its aim with a very small number of constraints. This theory helps in identifying the most important bottleneck in process and systems by which the organization can improve its performance.