A complete restatement of the case, just enough background for a reader not familiar with the case to follow the narrative. FIVE STAR TOOLS Five Star Tools is a small family­owned firm that manufactures diamond­coated 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, the blanks are sent to a chemical bath that prepares the tools for the coating process. In the third major process, the blanks are coated with diamond chips in a proprietary process that simultaneously coats and sharpens the blade of each tool. Following the coating process, each tool is inspected and defects are repaired or scrapped. In the past two years, the company has experienced significant growth and growing pains. The company is at capacity in the coating and sharpening process, which requires highly skilled workers and expensive equipment. Because of the bottleneck created by this operation, the company has missed deadlines on orders from several important customers. Maxfield Turner, the son of Frederick Turner, founder of Five Star Tools, is the president of the company. Over lunch he and Betty Spence, vice president of marketing, discussed the situation. Weve got to do something, Betty began. If we dont think we can meet a customers order deadline, we should turn down the business. We cant simply keep customers waiting for product or well develop are putation as an unreliable supplier. You know as well as I do that this would be devastating to our business. I think there may be another approach, Betty, replied Max. Some of our products are exceptionally profitable. Maybe we should concentrate on them and drop some of the less profitable ones. That would free up our production resources. Or maybe we can figure out a way to run more product through the coating process. If we could just loosen that constraint, I know we could improve our response time and profitability. Ill tell you what Ill do. Ill get the accounting department to prepare an analysis of product profitability. That should help us figure out which products to concentrate on. And Ill get the production people thinking about how to free up some time in coating. Well meet early next month and try to get a handle on how to deal with our production constraints. Based on this information, estimate the incremental profit per year associated with adding the new inspection station. ________Model C210 Chisel Model D400 Chisel________ Selling price $500 Less variable costs: Direct labor $ 85 Direct material 150 Variable overhead 15 250 Contribution margin 250 Less allocated fixed costs 185 Profit per unit $ 65 Time in coating and sharpening to produce 1 unit .2 hours $850 $ 180 180 60 420 430 230 $200 .8 hours

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Status NEW Posted 23 Apr 2017 11:04 PM My Price 10.00

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