Reference no: EM13896433

Midas Gold Juice Company

You are the purchasing director for Midas Gold Corporation, a small Midwestern fruit-juice company that produces a line of premium, limited-run fruit juice (Slogan: Midas Juice-You'll be touched by the Gold). As one of your responsibilities, you review all requests for capital equipment that costs $10,000 or more. Recently, you have received a request from the production department to purchase an additional stamping machine. This machine will double the capacity of the tin shop from its current level of 80,000 lids (design capacity) to 160,000 lids. Every can needs two lids. Production managers also claim that the new machine will balance the line and improve output dramatically.

In reviewing the request, you decide to examine the production process. You find a fairly straightforward process that starts by squeezing the juice from the fruit and storing it in tanks. On average, these tanks hold 4,000 gallons available at any time. Under ideal circumstances, this amount fills 40,000 cans per month.

The can-making process has two stages. In the first, the cans are made in two steps involving two departments.

The tin department makes lids with a current capacity of 80,000. The stamping department converts sheets of tin into the can bodies. The tin department uses 4,000 sheets of tin per month, and each sheet produces 12 can bodies. The bodies and lids are assembled in the filling department where they are filled and sealed. The design capacity of the filling department is 50,000 cans per month.

Questions

1. What is your response to the request for the new machine?

2. Identify any concerns that you have. (Hint: Think about the process and its design capacities when answering this question.)