Cost Analysis on the Production of Ring Gears in the Weatherburn Aircraft Engine Company Case
A Case Study
Presented to:
Menandro M. Merlin Research Adviser
Jann Railey Montalan Kristine Montaron Daphny Mogol Menard Ragual Ma. Niña Ciriaco Lea Joy Morong Analysts __________________________________________ _________________________ _________________________________________ _____________________________________________ ___________________________ ______
MARINDUQUE NATIONAL HIGH SCHOOL Boac, Marinduque August, 2013
Introduction
Sierra Airlines ordered for ten spare ring gears from the Weatherburn Aircraft Engine Company in June 1957. The ring gear they had ordered was the largest and most expensive of the gears in the system which drives the propellers of their aircrafts. The Weatherburn Company carted in stock part No. 21573, the gear blanks wherein the gears would be made. The gear blank was said to be in a standard size which is proficient in many airplanes. The number of teeth, however, was altered. Sierra Airlines had bought the airplanes with these gears and the management decided that flying requirements peculiar to this airline need a gear ratio that is somewhat higher than the standard. Then the Weatherburn Aircraft Engine Company had promptly designed a special gear train accordingly. It is distinctive and no other airlines used this kind of ratio. Sierra Airlines have a purpose of transforming its task force of aircraft to jet operations. The production manager of Weather Company later found out that the demanded ten spare ring gears would definitely last until Sierra’s curr ent
aircraft had been entirely replace. Producing such ring gears requires the gear blanks to pass through many machining process which include hobbing, drilling, grinding, finishing, heat-treating and hardness tests. However, not all of the produced ring gears pass the standards and cannot be used. Additionally, the cost for manufacturing such is high, which means the Weatherburn Aircraft Engine Company must decide wisely in order for them to have a favorable output. As such, the company must decide on a economically-favorable scheduling policy so that they could fulfill the order of ring gears from Sierra Airlines.
Statement of the Problem
This case study was conducted to ascertain the most favorable policy the Weatherburn Aircraft Engine Company should conduct in order for them to meet the order of ring gears of Sierra Airlines, all while reducing production costs to a minimum. Specifically, this study sought to answer the following questions:
1. What amounts of blank gears on policies are needed to satisfy the order of ring gears from Sierra Airlines? 2. What are the possible production costs of creating the ring gears for the order of Sierra Airlines?
Objectives of the Study
. The general purpose of this study is to provide situations to tell the possible outcomes of the production policies of the Weatherburn Aircraft Engine Company, so as to aid the company on deciding which policies is the most favorable and suitable in satisfying the order of ten ring gears of Sierra Airlines, all while reducing production costs to a minimum . The study’s goal is to make an economic analysis in order to elucidate whether the company’s actions are propitious. It also aims to distinguish which of the policies cost the least on the gear production, and furthermore help the company to decide on the number of gear blanks to carry in.
Areas of Consideration
The Weatherburn Aircraft Engine Company received an order of 10 ring gears from Sierra Airlines. To meet this order, gear blank stock was carried in by the company to manufacture into ring gears. The company expends $50 each to make gear blanks. This blanks are then subjected to a process called hobbing, its setup was costing up to $500. The direct cost of hobbing an extra gear was negligible as long a s the machine’s capacity of 25 g ears at one time was not exceeded. Next to the process of hobbing were drilling, grinding and finishing operations with a total cost of $90 per gear. Furthermore, there was a setup cost of $250 associated with these operations. Then the machined gears were heat-treated and its cost was about $10 each. All hobbed gears would be first subjected to a 100% inspection. An average of 4% of all the hobbed gears failed to pass the inspection and had to be scrapped. After the heat-treating operation, only 80% of the gears had proved acceptable to the rigidity standards. All in all, critical decision-making must be used by the Weatherburn Aircraft Engine Company to ensure that the order of Sierra Airlines is met all while reducing pr oduction costs to a minimum.
Evaluation of Options
In order to aid the Weatherburn Aircraft Engine Company on what gear policies they should follow to meet the order of ring gears from Sierra Airlines all while reducing production costs to a minimum, a cost analysis consisting of a table of random numbers was made to simulate the possible outcomes of their policies. Using a table of random numbers, 20 policies were made with different numbers of gear blanks were setup to satisfy the order 10 ring gears of Sierra Airlines. According to the conditions stated, an average of 4% of hobbed gears fail inspection and are scrapped, while 20% of treated gears are substandard and unacceptable. Hence, these gears are disregarded and removed. The following random-number table shows the possible number of functional and acceptable ring gears for any random number of gear blanks, with regards to the conditions posted.
Gear Blanks
Reduced by 4%
Reduced by 20%
Funtional Ring Gears
10
9.60
7.68
7
11
10.56
8.45
8
12
11.52
9.22
9
13
12.48
9.98
9
14
13.44
10.75
10
15
14.40
11.52
11
16
15.36
12.29
12
17
16.32
13.06
13
18
17.28
13.82
13
19
18.24
14.59
14
20
19.20
15.36
15
21
20.16
16.13
16
22
21.12
16.90
16
23
22.08
17.66
17
24
23.04
18.43
18
25
24.00
19.20
19
26
24.96
19.97
19
27
25.92
20.74
20
28
26.88
21.50
21
29
27.84
22.27
22
Table 1. Random-number
table of gears for policies in the Weatherburn case
As seen in the table above, a minimum of 14 gear blanks is needed to ensure 10 ring gears that are acceptable and functional. Any number or gear blanks lower than this can result in ring gears less than 10.
In the following table, the production costs for creating the ring gears in relation to the previous random-number table are shown. Each gear blank costs $50 to make, passes through a hobbing process that costs $500, is subject to finishing at $90 each, with an additional $250 setup cost, and heat-treated at $10 each.
Gear Blanks
Ring Gears
Gear Blank ($50 each)
Hobbing ($500)
Finishing ($90 each)
Setup Cost ($250)
Heat-treat ($10 each)
Total Cost
10
7
50.00
500.00
630.00
250.00
70.00
$ 1,800.00
11
8
400.00
500.00
720.00
250.00
80.00
$ 1,950.00
12
9
450.00
500.00
810.00
250.00
90.00
$ 2,100.00
13
9
450.00
500.00
810.00
250.00
90.00
$ 2,100.00
14
10
500.00
500.00
900.00
250.00
100.00
$ 2,250.00
15
11
550.00
500.00
990.00
250.00
110.00
$ 2,400.00
16
12
600.00
500.00
1,080.00
250.00
120.00
$ 2,550.00
17
13
650.00
500.00
1,170.00
250.00
130.00
$ 2,700.00
18
13
650.00
500.00
1,170.00
250.00
130.00
$ 2,700.00
19
14
700.00
500.00
1,260.00
250.00
140.00
$ 2,850.00
20
15
750.00
500.00
1,350.00
250.00
150.00
$ 3,000.00
21
16
800.00
500.00
1,440.00
250.00
160.00
$ 3,150.00
22
16
800.00
500.00
1,440.00
250.00
160.00
$ 3,150.00
23
17
850.00
500.00
1,530.00
250.00
170.00
$ 3,300.00
24
18
900.00
500.00
1,620.00
250.00
180.00
$ 3,450.00
25
19
950.00
500.00
1,710.00
250.00
190.00
$ 3,600.00
26
19
950.00
500.00
1,710.00
250.00
190.00
$ 3,600.00
27
20
1,000.00
500.00
1,800.00
250.00
200.00
$ 3,750.00
28
21
1,050.00
500.00
1,890.00
250.00
210.00
$ 3,900.00
29
22
1,100.00
500.00
1,980.00
250.00
220.00
$ 4,050.00
Table 2. Expected
Production Costs of ring gears from policies in the Weatherburn case
As seen in the prevailing tables, the most favorable of all random-number policies is with the base gear blank number of 14 gear blanks. 14 gear blanks will result into 10 functioning ring gears, and will only cost $2250 to produce. Base gear blank numbers lower than this will result into an insufficient number of ring gears, while base gear blank numbers higher than this will result in a pricier production cost. Hence, a policy with 14 gear blanks can satisfy the order of 10 ring gears of Sierra Airlines at only $2250 production cost.
Decision
With the amassed information and data from the cost analysis and evaluation of options, it can be settled that the most favorable policy the Weatherburn Aircraft Engine Company should decide on to meet the order of ring gears from Sierra Airlines is a policy consisting of 14 gear blanks. The 14 gear blanks would result in 10 ring gears, the number of ring gears ordered, and would only cost about $2250 to produce. All in all, this means that the company should carry in 14 gear blanks of stock to meet the order of ten ring gears from Sierra Airlines at a minimum production cost of $2250.
