Zaramar Manufacturing produces two types of hydraulic cylinders (small and large). Both cylinders pass through four processes: cutting, welding, polishing, and paint- ing. With the exception of polishing, each of the processes employs 20 workers who work eight hours each day. Polishing employs 26 workers. The small cylinder sells for $80 per unit, and the large cylinder sells for $110 per unit. Materials is the only unit-level variable expense. The materials cost for the small cylinder is $40 per unit, and the materials cost for the large cylinder is $50 per unit. Zaramar’s accounting system has provided the following additional information about its operations and products:
Small Cylinder Resource Usage*
Large Cylinder Resource Usage*
Zaramar’s management has determined that any production interruptions can be corrected within two days.
1. Assuming that Zaramar can meet daily market demand, compute the potential daily profit. Now, compute the minutes needed for each process to meet the daily market demand. Can Zaramar meet daily market demand? If not, where is the bottleneck?
2. Determine the optimal mix and the maximum daily contribution margin (throughput).
3. Explain how a DBR system would work for Zaramar.
4. Suppose that the Engineering Department has proposed a process design change that will increase the polishing time for the small cylinder from 30 to 46 min- utes per unit and decrease its welding time from 30 to 20 minutes per unit. The cost of process redesign would be $20,000. Evaluate this proposed change. What step in the TOC process does this proposal represent?