A Case analysis on

Floating in Chocolate

In the year 2019, Mr XYZ, Proprietor of Caramel ltd., manufactures of chocolates at Mumbai,
sought council from students of Indian Institute of Management Rohtak regarding the
production and operation process of their manufacturing unit. The company, which started its
operation from 2000, began selling its product nationally in 2002. The delay was due to hurdles
faced during procurement of funds and other necessary resources, but had failed to a attain a
profitable sales volume even by 2012.
Mr XYZ was into manufacturing of various dairy products before 2000. Unfortunately, a viral
infection led to the decline in the demand of these products. Eventually, the company had to
close down pertaining to these huge losses. In order to start fresh, Mr XYZ. started with the
business of chocolate production, which was one of the booming and evergreen industry. With
limited resources, they were just able to start with one product which is 6-star. It was a pilot
project to know the feasibility and earn money to reinvest in the expansion of the project.
With the gradual success and increase in profit margin Caramel ltd. expanded itself over years
and presently owns four products namely 6-star, 7-star, 8-star and 9-star. The selling prices of
these products are $32, $34, $30 and $33 respectively. The company started with two workers.
Even though the company was expanding and now holds around 4 portfolios of products, but
the number of workers remains the same. The two workers, Ramesh and Dinesh work for 8
hours every day, 5 days every week.
This expansion of products increased the workload of both the workers and there was no
operational change in the division of workload which was a concern for the company.
The below figure is the depiction of the sequence of operations required along with the value
of raw material consumed at each operation while making each of the four products. Each
product requires three operations. For 6-star and 7-star the first operation is done by Dinesh
and the last two operations are done by Ramesh, while for products 8-star and 9-star the first
two operations are performed by Dinesh and the last operation is done by Ramesh. For
example, in order to make one unit of 6-Star, Dinesh will need to perform the first operation
which will take 20 minutes. At this stage $10 worth of raw materials are consumed. Then
Ramesh will perform the second operation which will take 8 minutes (and consume $4 worth
of raw materials). Ramesh will then perform the third (and the last) operation which will take
5 minutes (and consume $6 of raw materials).
Caramel ltd. needs to determine the quantities of all the four products to be produced per week.
Assume that Caramel ltd. will be able to sell all the products it makes. Both the workers can be
assumed to be given a fixed weekly salary of $400 each. Ignore all the other costs at Caramel
ltd. other than RM costs and workers’ salary.
 6-Star 7-Star 8-Star 9-Star
Selling Price: $32 $34 $30 $33

Worker A Worker A Worker A Worker A

Third Operation
5 min./unit 6 min./unit 7 min./unit 8 min./unit

RM RM RM RM
$6 $10 $3 $7

Worker A Worker B
Second Operation
8 min/unit 10 min/unit

RM RM
$4 $6

First Operation Worker B

20 min/unit

RM
$6
RM -> Raw material cost

Mr. XYZ wants the students to find out where the company is actually lagging and give the
answers of the following questions which he is having in his mind.
Q.1 Assume that Caramel Ltd. decides to make 6 - star only during the week ignoring the
other three products. Compute theoretical cycle time, theoretical capacity.
Q.2 Assume that Caramel Ltd. decides to make 6- star only during the week ignoring the
other three products. Further assume that Actual Demand per week for 6 - star is 100 units.
Considering these facts, compute the followings.
Q.3 What is the theoretical weekly capacity (in units)2 for both the workers for each of the
four products? The theoretical capacity of a worker for a product is nothing but the maximum
number of units of the given product that the given worker can process in a week (ignoring
the other worker and the other three products).

Q.4 Based on answers given in Q-3 above, what weekly production quantities will you
suggest for the four products to PSC so that total contribution per week is maximum?
(Assume that: Contribution = Selling Price – RM Cost – Labour Cost)

Solution:

Q.1 Assume that Caramel Ltd. decides to make 6 - star only during the week ignoring the
other three products. Compute theoretical cycle time, theoretical capacity.

6 - star

Being Worker B the bottleneck,

Theoretical Cycle Time = 20 min/unit

Theoretical Capacity (units / week)
=480 minutes/20 min/unit = 120 unit/week

Q.2 Assume that Caramel Ltd. decides to make 6 - star only during the week ignoring the
other three products. Further assume that Actual Demand per week for 6 - star is 100 units.
Considering these facts, compute the followings.

6 - star

Capacity Utilisation (%) =Actual Production/Theoretical capacity

=100*100 / 120 = 83.33%

Actual Cycle Time (Minutes/unit) =Total time/No. of units produced

=8*60*5/100 = 24 min/unit

Labour Utilisation (%) for Worker A:

= No. of units produced*direct labour content/Total no. of workers*hours*60
= (13 min/unit * 100) / 5 * 8* 60
=1300/2400 = 54.16%
Labour Utilisation (%) Worker B:
(20 min/unit * 100) /(5 * 8* 60)
=2000/2400 = 83.33%

Q.3 What is the theoretical weekly capacity (in units)2 for both the workers for each of the
four products? The theoretical capacity of a worker for a product is nothing but the maximum
number of units of the given product that the given worker can process in a week (ignoring
the other worker and the other three products).

Worker A

6 - star =(No. of days*No. of working hrs per day*60)/Direct labour content

= 8*5*60/ (8+5)
= 184.6 units/week

7- star =8*5*60/ (8+6)

=171.4 units/week

8 - star =8*5*60/ (7)

=342.85 units/week

9 - star =8*5*60/ (8)

=300 units/week

Worker B
6 - star =8*5*60/ (20)
= 184.6 units/week

7 - star =8*5*60/ (20)

= 184.6 units/week

8 - star =8*5*60/ (20+10)

= 184.6 units/week

9 - star =8*5*60/ (20+10)

= 184.6 units/week
Q.4 Based on answers given in Q-3 above, what weekly production quantities will you
suggest for the four products to Caramel Ltd. so that total contribution per week is
maximum?
(Assume that: Contribution = Selling Price – RM Cost – Labour Cost)

6 - Star:
Selling price = $32/unit
Raw material cost = $10 + $4 +$6 = $20
Profit = $32 - $20 = $12/unit
Wage per worker = $400/week
Number of products manufactured per week = 120 units
Contribution = (120*12) – (400*2) = $640

7 - Star:
Selling price = $34/unit
Raw material cost = $10 + $4 +$10 = $24
Profit = $32 - $24 = $8/unit
Wage per worker = $400/week
Number of products manufactured per week = 120 units
Contribution = (120*8) – (400*2) = $160

8 - Star:
Selling price = $30/unit
Raw material cost = $10 + $6 +$3 = $19
Profit = $30 - $19 = $11/unit
Wage per worker = $400/week
Number of products manufactured per week = 120 units
Contribution = (120*11) – (400*2) = $520
9 - Star:
Selling price = $33/unit
Raw material cost = $10 + $6 +$7 = $23
Profit = $33 - $23 = $10/unit
Wage per worker = $400/week
Number of products manufactured per week = 120 units
Contribution = (120*10) – (400*2) = $400

Thus, we can get maximum contribution by selling 6 - Star.