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

Exercise 19

Constraint Analysis, Flow Diagrams (Appendix) Silver Aviation assembles small aircraft for com­mercial use. The majority of its business is with small freight airlines serving areas whose airports do not accommodate larger planes. The remainder of Silver’s customers are commuter airlines and individuals who use planes in their businesses, such as the owners of larger ranches. Silver recently expanded its market into Central and South America, and the company expects to double its sales over the next three years.

To schedule work and track all projects, Silver uses a flow diagram. The diagram for the assembly of a single cargo plane is shown in Exhibit 1. The diagram shows four alternative paths with the critical path being ABGEFJK. Bob Peterson, president of Coastal Airlines, recently placed an order with Silver Aviation for five cargo planes. During contract negotiations, Bob agreed to a delivery time of 13 weeks (five work days per week) for the first plane with the balance of the planes being delivered at the rate of one every four weeks. Because of problems with some of the aircraft that Coastal is currently using, Bob contacted Grace Vander, sales manager for Silver Aviation, to ask about improving the delivery date of the first cargo plane. Grace replied that she believed the schedule could be shortened by as much as 10 work days or two weeks, but the cost of assembly would increase as a result. Bob said he would be willing to consider the increased costs, and they agreed to meet the following day to review a revised schedule that Grace would prepare.

Because Silver Aviation previously assembled aircraft on an accelerated basis, the company has a list of costs for this purpose. Grace used the data shown in Exhibit 2 to develop a plan to cut 10 working days from the schedule at a minimum increase in cost to Coastal Airlines. Upon com­pleting her plan, she reported to Bob that Silver would be able to cut 10 working days from the schedule for an associated increase in cost of $6,600. Grace’s Exhibit 3 shows accelerated assembly schedule for the cargo plane starting from the regularly scheduled days and cost.

EXHIBIT 1 Flow Diagram for Plane Assembly

EXHIBIT 2 Crash Cost Listing

	Expected Activity Times		Direct Cost
Activity	Regular	Accel.	Regular	Accel.	Added Crash Cost Per Reduced Day
AB Frame fuselage	20 days	16 days	$12,000	$16,800	$1,200
BC Wing placement	6	5	3,600	5,000	1,400
CD Engine mount	9	7	6,600	8,000	700
DE Landing gear	7	5	5,100	6,700	800
BE Cargo doors	3	3	1,400	1,400	—
BG Electrical wiring	15	13	9,000	11,000	1,000
GE Instrument panel	8	6	5,700	8,300	1,300
EF Electrical tests	11	10	6,800	7,600	800
GH Exterior shell	9	7	4,200	5,200	500
FJ Interior finish	8	7	3,600	4,000	400
HJ Exterior paint	6	5	3,600	4,000	400
JK Final testing	3	2	3,500	4,400	900
			$65,100	$82,400

EXHIBIT 3 Accelerated Plane Assembly Schedule

Activity Accelerated	Additional Cost per Day	Total Direct Cost
		$65,100
HJ by one day	$400	65,500
FJ by one day	400	65,900
GH by two days	500	66,900
CD by two days	700	68,300
EF by one day	800	69,100
DE by two days	800	70,700
BG by one day	1,000	71,700

Required

1. Is Grace’s plan satisfactory? Why or why not?

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2. Revise the accelerated assembly schedule so that Coastal Airlines will take delivery of the first plane ahead of schedule at the least incremental cost to Coastal.

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3. Calculate the incremental costs that Bob will have to pay for this revised accelerated delivery.

Step 1 of 3

1.?Grace Vander’s accelerated delivery schedule is unsatisfactory in cutting 10 days from the total project schedule because not all of her crashed activities are included on the critical path. The critical path is ABGEFJK, 65 days, the longest path through the diagram.

In order to reduce the completion time for a project, activities along the critical path need to be chosen to be crashed or reduced. Vander’s selection of activities FJ, EF, and BG, which are on the critical path ABGEFJK, will reduce total project completion time only by three days but her selection of activities HJ, GH, CD, and DE have no impact on the critical path and thus will not reduce project time.