You are on page 1of 2

Five Stars Tools Case

Five Star Tools is a small family owned firm that manufactures diamond coated cutting tools (chisels and saws) used by
jewelers. In the past two years, the company has experienced growth and is at capacity in the coating and sharpening
process. This has created a constraint, or bottleneck, that has caused the company to miss deadlines from several
important customers. This case analysis seeks to provide solutions to the constraint problem.
The
foll
owi
ng
is a
tabl
e
sho
win
g
the
cost
s
ass
ocia
ted
wit
h
two
chisels, the Model C210 and Model D400 Chisels:

The president of the company, Maxfield Turner, and Betty Spence, VP of Marketing, are looking for solutions to the
constraints. There are quite a few steps that can be taken to loosen the constraint in coating and sharpening. Using
Goldratts Theory of Constraints, the first step has been accomplished. Five Star Tools has identified the constraint to be
the coating and sharpening department (which requires highly skilled workers and expensive equipment).
There are several steps that can be taken to loosen the constraint in coating and sharpening:
Cross train workers in other departments so that they can help in the coating and sharpening process
Add an inspection station before coating and sharpening so that valuable time is not wasted
Invest in additional machinery
Reduce defective units (each defective unit that is processed in the bottleneck and then scrapped is taking the
place of a good unit that could have been sold for a profit)
Subcontract some of the work so demands could be met (this could be variable based on demand)
Implement a Resource Management team that would manage the scheduling of breaks so that all working are not
taking breaks at the same time
Have the management team along with REM team implement overtime hours
Five Star Tools manufactures the C210 and D400 chisel models. If they are unable to loosen the constraints then they
need to determine which model that they would solely focus on.
Model C210 Chisel Model D400 Chisel
Selling price $500 $850
Less Variable costs:
Direct labor
Direct material
Variable overhead


$85
150
15 250

$180
180
60 420
Contribution margin 250 430
Less allocated fixed costs 185 230
Profit per unit $65 $200
Time in coating and sharpening to produce 1 unit .2 hours .8 hours
This calculation below shows that the C210 model provides the larger contribution margin in relation to the constraint. So,
therefore model C210 should be emphasized.
Model C210 Model D400
Contribution Margin per unit 250 430
Time in coating & sharpening to
produce 1 unit
.2 hours .8 hours
CM / Unit of the constrained resource 1250 / hour 537.5 / hour

The C210 model is more profitable than the D400 model. So if four hours were used to make 20 C210s (240min/12min)
or 5 D400s (240min/48min). Because the additional contribution margin for the C210 model is larger and it makes the
profitable use of the companys constrained resource coating and sharpening.
Model C210 Model D400
Contribution Margin per unit 250 430
Additional units that can be
processed in four hour
20 5
Additional CM 5000 2150

The company wants to evaluate the benefits of gaining one more hour of production time in coating and sharpening for
the C210 and D400 model chisels.
Model C210 Model D400
Contribution Margin per unit 250 430
Number of minutes to coat and
sharpen a chisel
12 48
Additional units that can be
produced in 1 hour
5 1.25
Additional CM $1,250 $538

When looking at the table above, if Five Star were to gain one more hour in coating and sharpening, they will produce
five more C210 models and one a quarter more units of the D400 model. Five Star will gain an additional $1,250
contribution margin for producing the C210 model chisels and $538 additional contribution margin for producing the
D400 model chisels. These additional units would not incur any more fixed costs, so Five Stars net profit will increase by
$1,788.
In conclusion, Five Star Tools can to remove the bottleneck in the coating and sharpening process. Following the
suggested steps will ensure that they can continue to grow and meet demand. The steps are focusing on the more
profitable chisel, subordinating everything to the constraint by adding an inspection station, breaking the constraints using
the suggestions above and keeping an eye on the contribution margin. Five Star Tools should continue to identify any
new constraints in different departments to continue to meet demand.