Operations Management Unit 8 - Part 8 - Costs Essay Example
Introduction Albatross Anchors is a small business that operates in an old facility - Operations Management Unit 8 introduction. They are wanting to compete better with their competition. They need help to continue on with their manufacturing. This paper will look at the cost of production and a new production method to help reduce costs. Question One Based on the information presented in the scenario/case study discuss Albatross Anchor’s competitiveness in relation to (please address all items in the below list and provide support for your conclusions): 1. Cost a) Cost of Production:
According to the case study, it Albatross $8 per pound to make the mushroom anchor and $11 per pound to make the hook anchor. It also states that they charge the same as their competitors. I think in relation to the cost of the product Anchor competes pretty well. b) Economies of Scale in material purchasing: c) Cost of Raw Materials Sitting Idle in the Warehouse: Albatross is competitive in this area, they have a small space to store raw materials so they don’t keep a lot of materials sitting around. d) Cost of Finished Goods Sitting Idle in the Warehouse:
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They are comparative in this area as well. Albatross ships things out when they are done so they don’t sit around very long. 2. Speed of manufacturing process from order to finished product. Albatross’s speed of manufacturing process is poor. It takes them 36 to switch from one process to the next which takes considerable time away from production. 3. Flexibility in filling order(s) Albatross is not very competitive in this area. It takes 36 hours to switch from one anchor setup to the other. If they get an order for each due on the same day they might not be prepared. 4. Technology
According to the reading the technology at Albatross is way behind, which means they aren’t very competitive in this area. 5. Capacity and facilities Albatross doesn’t have a lot of room for storage of raw materials or finish goods. There is plenty of room for manufacturing purposes. 6. Service to customers Albatross is competitive is this area because they work hard to meet the demands of their customers. They make two different types of anchors that all come in different sizes to meet the customers needs. Question Two There are many ways that mushroom/bell anchors may be manufactured.
Albatross Anchor is considering two new manufacturing processes (Process A and Process B) to reduce costs. Analysis of the information below will help determine which process has the lowest breakeven point (this validates the process is more cost effective). For each process the following fixed costs and variable costs are identified below: |Anchor and Process |Process A |Process B | |Sale price per anchor |$45. 0 |$45. 00 | |Total Fixed cost |$ 650,000. 00 |$950,000. 00 | |Variable cost per anchor |$ 36. 00 |$ 29. 99 | Based on the information in the table above complete the table below: Anchor and Process |Process A |Process B | |(a) Fixed costs per anchor |9 | 15. 01 | |(b) The total number of anchors to attain | 72,222 |63,291 | |break–even point for Process A and Process B | | (c) Based on your calculations which Process (A or B) that you would recommend for adoption (you can select only one). Please make sure to explain how you arrived at your conclusion. Based on my calculations I would go with process b. I think process b would be the better way to go because the break-even point is almost 10,000 anchors less than process a. I know it would cost more to get started but overall the payoff would be better with process b. Conclusion