Five Star Tools Case Study

Richard Borton

BUS 5431 – Managerial Accounting

Week 6 – Individual Case Study

Sunday August 14, 2016

Professor Chad Greenfield

Case 7-2

Five Star Tools

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        Five Star Tools is a small, family-owned company that manufactures diamond-coated chisels and saws for use by the jewelry industry. To produce the tools involves three processes. First, steel blanks are cut to size, then the blanks are put through a chemical bath, and finally, the blanks are coated and sharpened. After the third process, each of the tools is inspected for quality. In the past two years, the company has experienced significant growth. So much so that its coating and sharpening division is operating at capacity, but it’s not able to keep up with the orders. Because the coating and sharpening division is not able to keep up with the orders, a bottleneck is created and is cause for alarm for Five Star.

        Company President Maxfield Turner and the Vice President of Marketing Betty Spence sat down and had a discussion about what could be done to improve the situation. Ideas ranged from turning down business beyond what the company was capable of keeping up with to dropping some of the company’s less profitable items to finding a way to run more products through coating and sharpening. Maxfield told Betty that he would have the accounting department run the numbers on which products are more profitable as well as finding out from the production people how they think more products could be put through coating and sharpening. They would then discuss their findings in a meeting the following month.

        Five Star Tools has some problems that stem from its growth over the last two years. So much growth that one of its departments cannot keep up with all of the orders. This is creating a bottleneck in the company’s manufacturing process and causing the company to either miss orders or have them significantly delayed. Utilizing the Theory of Constraints (TOC), the obvious plan would be to improve or eliminate the problem with the coating and sharpening department. But how could this be accomplished? The process that appears to be slowing down the coating and sharpening department is that department having to inspect each unit for burrs and rough edges before it can be coated and sharpened. The coating and sharpening department is operating and capacity and the chemical bath department is not. Therefore, as management has already discussed, it would be a good idea for Five Star to bring an employee from chemical bath to do these inspections as needed. This will free up much needed time for the coating and sharpening employees to get more product finished. The only other option would be to hire more employees for the coating and sharpening department, but those employees are highly skilled individuals and the equipment is expensive.