Reference no: EM132208852

Atlas Inc. is a toy bicycle manufacturing company producing a five-inch small version of the bike that Lance Armstrong rode to win his first Tour de France. The assemblyline at Atlas Inc. consists of seven work stations, each performing a single step. Stations and processing times are sumarized here:

Step 1: 25 seconds

Step 2: 25 seconds

Step 3: 35 seconds

Step 4: 25 seconds

Step 5: 30 seconds

Step 6: 30 seconds

Step 7: 45 seconds

Under the current process layout, workers are allocated to the stations as shown here:

Worker 1: Steps 1 and 2

Worker 2: Steps 3 and 4

Worker 3: Step 5

Worker 4: Step 6

Worker 5: Step 7

Assume the workers are paid $20 per hour. Each bicycle is sold for $6 and includes parts that are sourced for $1. The company has fixed costs of $225 per hour. Despite Lance Armstrong's doping confession, there exists substantially more demand for the bicycle than Atlas can supply.

a. What is the cost of direct labor for the bicycle?

b. How much profit does the company make per hour?

c. What would be the profits per hour if Atlas would be able to source the parts 8% cheaper ($0.92 for the parts of one unit, but the fixed costs and productivity will remain the same as before)?

d. What would be the profits per hour if Atlas would be able to reduce fixed costs by 9% (to $204.75 per hour)?

e. What would be the profits per hour if Atlas would be able to reduce the processing time at the bottleneck by 3 seconds per unit (assume unlimited demand, not that reducing the processing time may cause the bottleneck to shift to a different process or create multiple, identical bottlenecks)?