Question

Hi I need help on this case study analysis below? Please dontpartially answer! I need the full ansewrs, thank you.

Five Star Tools is a small family-owned firm that manufacturesdiamond-coated cutting tools (chisels and saws) used by jewelers.Production involves three major processes. First, steel blanks(tools without the diamond coating) are cut to size. Second, theblanks are sent to a chemical bath that prepares the tools for thecoating process. In the third major process, the blanks are coatedwith diamond chips in a proprietary process that simultaneouslycoats and sharpens the blade of each tool. Following the coatingprocess, each tool is inspected and defects are repaired orscrapped. In the past two years, the company has experiencedsignificant growth and growing pains. The company is at capacity inthe coating and sharpening process, which requires highly skilledworkers and expensive equipment. Because of the bottleneck createdby this operation, the company has missed deadlines on orders fromseveral important customers.

Maxfield Turner, the son of Frederick Turner, founder of FiveStar Tools, is the president of the company. Over lunch he andBetty Spence, vice president of marketing, discussed the situation.“We’ve got to do something”, Betty began” If we don’tthink we can meet a customers order deadline, we should turn downthe business”. We can’t simply keep customers waiting for productor we’ll develop a reputation as an unreliable supplier. You knowas well as I do that this would be devastating to our business.

“I think there may be another approach, Betty,replied Max.” Someof our products are exceptionally profitable. Maybe we shouldconcentrate on them and drop some of the less profitable ones. Thatwould free up our production resources. Or maybe we can figure outa way to run more product through the coating process. If we couldjust loosen that constraint, I know we could improve our responsetime and profitability. I’ll tell you what I’ll do. I’ll get theaccounting department to prepare an analysis of productprofitability. That should help us figure out which products toconcentrate on. And I’ll get the production people thinking abouthow to free up some time in coating.” We’ll meet early next monthand try to get a handle on how to deal with our productionconstraints.”

(Case pertains to theory of constraints by Eli Goldratt)

A. What steps can be taken to loosen the constraint incoating and sharpening?

B. Consider Model C210 and Model D400 chisels. Whichproduct should be emphasized if the constraint in coating andsharpening cannot be loosened?

C. Focusing only on the Model C210 chisel and the modelD400 chisel, what would be the benefit to the firm of gaining onemore hour of production time in coating andsharpening?

D. In coating and sharpening, the operator begins by inspectingitems that have arrived from the chemical bath. If rough edges orblemishes are detected, the operator will smooth and/or buff theitems before actual coating or sharpening takes place. (Note thatthis process is in addition to the inspection that takes place at aseparate inspection station following coating and sharpening.)

In order to save valuable time in coating and sharpening,management is considering forming a separate inspection stationbefore the coating and sharpening process, that will be staffed onan as needed basis by existing employee from a department havingexcess capacity, This will free up 240 hours in coating andsharpening (average 5 min per hour x 8 hours daily x 365 daysannual / 60) Average Contribution margin per hour in coating andsharpening is $850. Based on this information, estimate theincremental profit per year associated with adding the newinspection station

Ch7 Case 2 Five Star Tools
	Model C210 Chisel		Model D400 Chisel
Selling price	$500		$850
Less Variable Cost :
Direct Material	$150		$180
Direct Labor	$85		$180
Variable OH	$15		$60
Contribution Margin	$250		$430
Less Allocated Fixed cost	$185		$230
Profit per unit	$65		$200
Time in coating and sharpening to produce 1 unit	0.20		0.80