1. Example Exercise 8 Production Bottlenecks, Pricing, and Profits
Theory of Constraints
A production bottleneck is a point in the manufacturing process where the demand for the company’s product exceeds the ability to produce the product. The theory of constraints [CLICK] is a manufacturing strategy that focuses on reducing bottlenecks in the production processes.
A manufacturing strategy that focuses on reducing bottlenecks in the production processes.

2. Example Exercise 8 Accept Business at a Special Price $90 per hour
To illustrate bottlenecks and profits, assume that Pridecraft Tool Company makes three types of wrenches: small, medium, and large. All three of the products are processed through a heat treatment operation, which hardens the steel tools The heat treatment is operating at full capacity and is a production bottleneck. [CLICK] By looking at the unit contribution margin for each product, it looks like the large wrench is the most profitable with a unit contribution of $120. However, when we look at the heat treatment hours per unit, [CLICK] we see that the small wrench requires one hour, the medium wrench four hours and the large wrench requires eight hours. Due to the bottleneck of the heat treatment process, we need to calculate the unit contribution margin per production bottleneck hour which is calculated as [CLICK] the unit contribution margin divided by the heat treatment hours per unit. This results in [CLICK] $90 per hour for the small wrench, [CLICK] $25 per hour for the medium wrench and [CLICK] $15 per hour for the large wrench. The small wrench [CLICK] is the most profitable product per production bottleneck hour and is the one that should be emphasized in the market.
$90 per hour
$25 per hour
$15 per hour

3. 2 Example Exercise 8 8 Most Profitable!
Let’s look at the example exercise. Product A has a unit contribution margin of [CLICK] $15 and Product B’s unit contribution margin is $20. At first glance, it looks like Product B is the most profitable. However, the bottleneck is the furnace. Product A requires [CLICK] three furnace hours and Product B requires five. To determine the unit contribution margin per production bottleneck hour, we divide $15 by 3 hours for Product A to get [CLICK] $5 and $20 by 5 hours to get $4 for the unit contribution margin per production bottleneck hour for each product. Now we can see that [CLICK] Product A is the most profitable in using bottleneck resources.
Most Profitable!

4. Example Exercise 8 8 8 8  For Practice: PE 8A, PE 8B 8
Refer to Practice Exercises PE 8A and PE 8B to practice calculating bottleneck profit.
8A, 8B
 For Practice: PE 8A, PE 8B