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Problem 7-17 (Appendix) Batch Size Decision and Constraints

Problem 7-17 (Appendix) Batch Size Decision and Constraints
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ACCOUNTING

MT425 / MT 425
Managerial Finance and Accounting
Kaplan University (KU Campus)

James Jiambalvo
Managerial Accounting, 4e
Hoboken, NJ: John Wiley & Sons.

Unit 6: Management Accounting in a Competitive Business Environment

Chapter 7 Problem 7-17
(Appendix) Batch Size Decision and Constraints [LO A1] At Dalton Playground Equipment, the powder-coating process is a bottleneck. Typically, it takes approximately two hours to switch between jobs. The time is spent cleaning nozzles and paint tanks and recalibrating equipment. Currently the company runs relatively small batch sizes through the process but is considering increasing them to reduce setup time.
With small batch sizes, powder coating can process approximately 2,000 units per 8-hour shift, and products have an average contribution margin of $50. With large batch sizes, powder coating can process approximately 2,300 units per 8-hour shift.

Required
a. Calculate the additional profit associated with running larger batch sizes through the powder-coating process.
b. What potential problems are created by the larger batch sizes?

 

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