Five Star Tools

Topics: Variable cost, Vice President of the United States, Contribution margin Pages: 2 (562 words) Published: December 14, 2012
Executive Summary
Five Star Tools is a family owned manufacturing company that manufactures chisels and saws used by jewelers. They produce the tools utilizing a 3 step process. In the past two years the company has experienced significant growth and at times has not been able to meet order deadlines. Management has identified that they have a bottle neck in the coating and sharpening process. Overview

The president of Five Star Tools, Maxfield Turner decided to meet with the vice president of marketing Betty Spence to discussion the missed deadlines and production capacity. In their meeting Betty Spence believes they should stop accepting orders in which they cannot meet customer deadlines to maintain their reputation in the industry. The president of the company Maxfield Turner believes that they should look at the company’s product offerings and production constraints. He wants to review with the accounting department the potential impact of eliminating less profitable product offerings and with the production department on ways to loosen the constraint in the coating process. Issues Addressed

A. Identify the Binding Constraint
Since management has identified that the bottleneck occurs at the coating and sharpening process production should be reduced in the cutting and chemical bath departments to meet the needs of the coating and sharpening department. This should be done regardless of the production capacity of these departments because work is stacking up in the coating and sharpening department. B. Optimize Use of Constraint

Model C210 should be emphasized if constraint cannot be loosed in the coating and sharpening department. Each hour this model produces $1,250 of incremental profit compared to $537.50 produced by Model D400. Model C210 ChiselModel D400 Chisel

Selling price $ 500.00 $ 850.00
Less Variable cost per unit:
Direct Labor $ 85.00 $ 180.00
Direct material $ 150.00 $...
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