Accounting Information Systems 8th Edition by James Hall

Exercise 61

CMA 786 5-Y6
PERT Chart
Silver Aviation assembles small aircraft for commercial use. The majority of Silver's business is with small freight airlines serving areas where the airport does not accommodate larger planes. The remainder of Silver's customers are commuter airlines and individuals who use planes in their businesses. Silver recently expanded into Central and South America and expects to double its sales over the next three years.
To schedule work and keep track of all projects, Silver uses the PERT. The PERT diagram for the construction of a single cargo plane is shown in the diagram for Problem 12. The PERT diagram shows that there are four alternative paths, with the critical path being ABGEFJK.
Bob Peterson, president of Coastal Airlines, has recently placed an order with Silver Aviation for five cargo planes. At the time of contract negotiations, Peterson agreed to a delivery time of 13 weeks (5 working days per week) for the first plane, with the balance of the planes being delivered at the rate of one every 4 weeks. Because of problems with some of the aircraft Coastal is using, Peterson has contacted Grace Vander, sales manager for Silver Aviation, to ask about improving the delivery date of the first cargo plane. Vander replied that she believed the schedule could be shortened by as much as 10 working days, or 2 weeks, but the cost of construction would increase as a result. Peterson said he would be willing to consider the increased costs, and they agreed to meet the following day to review a revised schedule that Vander would prepare.
Because Silver Aviation has assembled aircraft on an accelerated basis before, the company has compiled a list of crash costs for this purpose. Vander used the data shown in the Crash Cost Listing table at the middle of the diagram for Problem 12 to develop a plan to cut 10 working days from the schedule at a minimal increase in cost to Coastal Airlines.
Upon completing her plan, Vander was pleased that she could report to Peterson that Silver would be able to cut 10 working days from the schedule. The associated increase in cost would be $6,600. Presented at the bottom of the diagram for Problem 12 is Vander's plan for the accelerated delivery of the cargo plane, starting from the regularly scheduled days and costs.
Required
a. PERT is a form of network analysis.
1. Explain how the expected regular times for each activity are derived in using PERT.
2. Define the term critical path and explain why path ABGEFJK is the critical path in this situation.

b. Evaluate the accelerated delivery schedule that Grace Vander prepared.
1. Explain why Vander's plan as presented is unsatisfactory.
2. Revise the accelerated delivery schedule so that Coastal Airlines will take delivery of the first plane 2 weeks (10 working days) ahead of schedule at the least incremental cost to Coastal.
3. Calculate the incremental costs Bob Peterson will have to pay for this revised accelerated delivery.