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The future looked bright for Leanne's Liquid Beverage. The company currently produced and sold 2,000 cases of twelve 350-ml bottles per week, making...
The future looked bright for Leanne's Liquid Beverage. The company currently produced and sold 2,000 cases of twelve 350-ml bottles per week, making a contribution of $2 on each case. It now appeared that a sudden surge in popularity, led by two new contracts, would increase weekly demand to 8,000 cases. However, the production manager was worried that the process would be unable to handle the increased demand.
The beverage was made in five steps. The mixing operation was capable of producing 7.0 L of Leanne's Liquid Beverage per minute. The bottling machines' effective capacity was 600 bottles per hour. Two workers applied labels by hand; each worker could apply labels to 3,840 bottles per day. The capping machine could cap up to 1,200 bottles per hour. The final machine in the line, the packager, could package 1,600 cases per day. The plant's productive time was eight hours per day, five days per week.
Leanne's production manager informed her that the cost per week of doubling the output at each of the five operations would be:
Bottling $1,975 (Note that each time you increase the output of the bottling machine by 600 - bottles per hour, it costs $1,975.)
Labelling $1,200 Capping $900 Packaging $1,500
a. What is the current capacity of this system? Where is the bottleneck?
b. Can the current system handle the increased demand?
c. If not, what changes should Leanne consider?
d. Should Leanne proceed with the new changes? Why, or why not?