Eastern gear Inc., in Philadelphia, Pa., is a manufacturer of custom made gears ranging in weight from a few ounces to over 50 pounds. The gears are made of different metals depending on the customer’s requirements. Over the past year 40 different types of steel and brass alloys have been used as raw materials. See Exhibit 1 for details.
Eastern gear sells its products primarily to engineering research and development laboratories or very small manufacturers. As a result the number of gears in most orders is small; rarely is exactly the same gear ordered more than once. The distribution of order sizes for March 1998 is shown in Exhibit 2.
Recently the president of Eastern Gear decided to accept a few larger orders for 100 gears or more. Although lower prices were accepted on these orders, they helped pay the overhead. It was found that the large orders caused many of the small orders to wait for a long time before being processed. As a result some deliveries of small orders were late.
Exhibit 1 - Raw Materials
|Type of material |1987 usage $(000) | |A |$36 | |B |10 | |C |15 | |D |43 | |E |110 | |F |18 | |G |32 | |H |75 | |I |40 | |J |60 | |K |30 | |All others |53 | | | | |Total |$522 |
When a customer wishes to order a gear, the order is taken by James Lord, sales manager and marketing vice president. The customer specifies the type of gear desired by submitting a blue print or sketch. The quantity of gears required and the type of material are also specified by the customer. On occasion the customers engineer will call up after the order has been placed and request a change in the design. In these cases, it may be necessary to stop production and wait for new raw
materials or for the design to be clarified. The customers prints submitted with the order do not always contain the tolerances or finishes required during machining. As a result the customer is contacted directly when the information is needed.
After the order is received, one copy is sent to the production supervisor, Joe Irvine, and the second copy is sent to Sam Smith, the controller. Upon receipt of the customers order, Mr Smith places a purchase...