Cost of Production: The cost of manufacturing the bell anchor is $8. 00 per pound and the cost of manufacturing the hook anchor is $11. 00 per pound, yet charge the same amount per unit as their competitors, which in turn decreases their profit margins. At this time Albatross is dealing with operations and production obstacles due to the lack of space for the production of both anchors. B) Economies of Scale occur when the cost per unit decreases as the production of higher levels of units increases. In order to achieve this, the fixed cost per unit does not change and is spread over an increasing number of units (Petting,
T. , 2012). Production or operating costs do not increase with the output levels increasing. Since Albatross produces small batches due to the space issue, and raw materials purchased in large quantities would be a big cost because of time sitting idle, it would not be easy to even recognize the economies of scale. C) Cost of Raw Materials Sitting Idle in the Warehouse: Since Albatross manufactures only one of their two products at a time, raw materials are being stored and sitting idle within the compact warehouse space. This in turn creates a costly burden on Albatross. ) Cost of Finished Goods Sitting Idle in the Warehouse: Because of Albatross being landlocked they have weight restrictions on their products which means they must ship via truck, rail or ocean freight. By using distribution center, their products can be shipped out when finished so that there isn’t a long waiting period for the products to be idle. Speed of manufacturing process from order to finished product. Although it takes thirty- six hours to convert the machinery over to comply with specifications of the product being manufactured, the process is at its best.
For large bulk orders it can take three to four weeks to fill. This is an area of definite concern. Flexibility in filling order(s) Because of the fact that they have to change machinery to accommodate one product at a time, if an order for a product that is not being manufactured at that particular time comes in the turn-around time is three to four weeks so that the company can finish the product which is in production, tear down machines and switch them out, then manufacture the product next on order.
Technology Albatross is working with outdated office machinery, and their plant layout is in need of improvement and redesign. By investing in updated computers for the office and changing the layout then orders can be received and shipped faster by knowing ahead of time what product will need to be produced next in line. Also, a flexible manufacturing system (FM) could be put into place so that machinery could be introduced to accommodate both products with minimal changes and setup and queuing times decreased (Inman, R. , 2015).
Capacity and facilities With having to facilitate every inch of space in one building it is difficult to maximize production and effectiveness. To be more efficient the layout of the facility needs to be changed. Incorporating the warehouse (foundry) with the knishes products and raw materials, this would allow for receiving and shipping being able to move much more smoothly. The administrative area can be decreased in size with billing and administrative (HER, CEO) offices in a smaller space and receiving having its own receiving management office at the rail line and shipping having the same at their shipping truck area.
All employees should be exposed to the same entrance to incorporate and familiarity between management and employee to create a welcome, work friendly environment (Russell & Taylor, 2013). Service to customers (what types of services would n anchor company provide to marine wholesalers? Albatross services their customers in two ways. First they sell their products at wholesale to distributors for shipping to retail locations and secondly MEMO can buy the products in bulk to use in the manufacturing of boats. 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 break- even 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. 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 chart below: Anchor and Process (a) Fixed costs per anchor $ 9. 00 $15. 1 (b) The total number of anchors to attain break-even point for Process A and Process B 72,223 63,292 After doing my calculations I would recommend Process B for adoption because it requires fewer units to produce. We must first know our total fixed and variable costs, and the price of a product. To calculate this we take the fixed costs divided y the variable minus the fixed unit costs and this will give us our breakages point in number of units to be produced (Palaver, R. , 2015). First to find the fixed cost of a unit we take the sale price per anchor and subtract the variable cost per anchor.
