PROBLEM 7-17. (Appendix) Batch Size Decision and Constraints [LO A1] At Dalton P

Question

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?

Explanation / Answer

Given information: With small batch units prodced per 8 hours shift = 2,000 units With large batch units produced per 8 hours shift = 2,950 units Contribution margin when 2,000 units produced = $55 So the contribution margin per unit                     = 55 / 2,000 Contribution marginper unit                                = 0.02 So contribution margin for 2,950 units                = 0.02 x 2,950 Contribution margin                                           = 81 Additional profit      = Profit when 2,950units- profit when 2,000 units                               = $81 - $55 Additional profit      = $26.                                With small batch units prodced per 8 hours shift = 2,000 units With large batch units produced per 8 hours shift = 2,950 units Contribution margin when 2,000 units produced = $55 So the contribution margin per unit                     = 55 / 2,000 Contribution marginper unit                                = 0.02 So contribution margin for 2,950 units                = 0.02 x 2,950 Contribution margin                                           = 81 Additional profit      = Profit when 2,950units- profit when 2,000 units                               = $81 - $55 Additional profit      = $26.                               

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