Lorex Case

Carter Blakely, manager of quality assurance for the manufacturing division of Lorex Pharmaceuticals, was pleased with the progress made so far toward the production of the company's newest product, Linatol. Developed for the treatment of high blood pressure developed and patented by Lorex several years ago, Linatol was a highly promising medicine. After eight years of thorough product testing, including clinical studies of the drug's effectiveness on humans, the U.S. Food and Drug Administration (FDA) had approved Linatol only a week ago. The manufacturing division had been able to prepare a production line during the past week and now one-shift production was scheduled to begin on Monday. The marketing division at Lorex had decided that the initial offering of Linatol would be in sealed 10-ounce bottles, packaged in cases of 12 bottles each. The wholesale price had been set at $186 per case. The one task remaining for Blakely on this Friday afternoon was the selection of a target amount to which each of the 10-ounce bottles of Linatol would be filled.

The Manufacturing of Linatol

Linatol was blended in 5,000-liter batches using a process and formula that were kept confidential by the company. The product was then bottled on one of the company's semiautomatic filling lines. Those lines consisted of an automatic filling mechanism for liquids, a capping and sealing component, and an electronic sensor capable of measuring the volume of liquid in each bottle. The bottles, when filled properly, were conveyed to a packaging machine that would load and seal cartons of 12 bottles each. At top speed, the line chosen for Linatol could fill and package 1,000 bottles per hour. Because of unavoidable delays and setup requirements, the production rate was expected to average 500 cases over an eight-hour shift. Those rates were slower than most of the other filling lines in use, but the relatively low production volumes of Linatol dictated that it be filled on one of the older, slower lines, which was not needed for any other product.

The entire line was operated by two employees who earned $12.80 per hour, including fringe benefits. Every product was charged an overhead burden to cover the huge expense of maintaining an antiseptic filling room. For the line on which Linatol would be bottled, the

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