The H&S Motor Company assembles a single model motor from purchased kits. Each kit contains
enough material to make one motor. The 20 workers produce a total of 100 motors per day. Each
worker cost $20.00 per hour (including all benefits). The factory is open 50 weeks a year, 5 days per
week, 40 hours per week. The kits cost $40. Due to accidental damage during assembly, they use an
average of 102 kits per day. Capital costs are $1200 per day (cover all costs besides labor, materials and
managers salaries). The company has three managers (including Mr. Stevens, the owner). Each manager
costs $60,000 per year. H&S sells motors for $120 each.
Mr. Stevens, the boss, has been given three ideas for improving his operation.
1. Hire a purchasing manager. The marketing manager has suggested that they hire a purchasing
manager. A purchasing manager will be able to buy the same materials as those in the kits in
bulk. In bulk the materials will only cost about $36 per kit. Two additional workers will be.
required to sort the materials. These materials handlers would cost as much as other workers.
The purchasing manager would be paid the same as other managers.
2. Buy improved machinery. A vendor has shown Mr. Stevens a new assembly jig that would mean
that 20 workers would be able to produce 112 motors a day. Each of the workers would need a
jig, since worker assembles a full kit. Each jig would raise capital costs by $20 per day.
3. Improve procedures. One of the workers has shown Mr. Stevens a new procedure that would.
reduce the chance of damage during assembly. If all of the workers used this procedure, they
would use an average of 101 kits per day. Adopting the procedure would mean taking one hour.
for the worker who suggested to train all the other 19 workers. No motors will be.
assembled during this training period. This training only needs to occur once.
Question:
Evaluate the proposed ideas. What should Mr. Stevens do?
b. What assumptions do we need to make to complete this analysis?
