A company that manufactures paving material for driveways and parking lots expects the following demand for its product for the next four weeks:
Week number 1 2 3 4
Material(tons) 40 80 60 70
Production standard
(hours per ton) 4 3
Material production
capacity(hours) 300 200
A. Determine the capacity utilization for labor and machine for each of the four weeks.
B. In which weeks do you foresee a problem? What options would you suggest to resolve any problems? What costs are relevant in making a decision on choosing an option?

B. There is a problem in weeks 2 and week 4. In week 2, both the labor and machine capacities were over-utilized, while in week 4 only the machine capacity was over-utilized. In other weeks, there were notable under-utilization of labor and machine capacities.

B2. Production materials for the weeks should have been made even (60 tons per month) to smoothen the demand on weeks 2 and 4.

B3. The relevant costs involved in making this decision are direct labor costs.

Explanation:

a) Data and Calculations:

Week number 1 2 3 4

Material(tons) 40 80 60 70

The company’s labor and machine standards and available capacities are as follows:

Labor Machine

Production standard (hours per ton) 4 3

Material production capacity(hours) 300 200

A. Capacity Utilization for Labor and Machine

Labor Capacity % Machine Capacity %

Week 1 160 (40*4) 53.3% (160/300) 120 (40*3) 60% (120/200)

Week 2 320 (80*4) 106.7% (320/300) 240 (80*3) 120% (240/200)

Week 3 240 (60*4) 80% (240/300) 180 (60*3) 90% (180/200)

Week 4 280 (70*4) 93.3% (280/300) 210 (70*3) 105% (210/200)

Total labor hours = material * production standard hour per ton.

Total machine hours = material * production standard hour per ton.