1. Suppose a company has two processes to choose from. Process A will incur a to
ID: 327833 • Letter: 1
Question
1. Suppose a company has two processes to choose from. Process A will incur a total fixed cost of $1 million a year and a per-unit variable cost of $4. Process B will incur a total fixed cost of $1.5 million a year and a per-unit variable cost of $3.
What is the cross-over point?
What is the volume range over which Process A will incur a lower total cost? And why?
2. Suppose a company made $2,000,000 in revenue last year. The cost of goods sold was $85,000 last year, and the average inventory value for the year was $50,000.
a) What was the inventory turnover of the company?
b) What was the weeks-of-supply of the company?
3. The following table gives the map coordinates and the shipping loads for a set of cities that we wish to connect through a central hub.
City
Map coordinates (x, y)
Shipping load (in tons)
A
(5, 15)
20
B
(20, 5)
15
C
(15, 10)
10
D
(10, 5)
5
Using the Centroid method, at what map coordinates should the central hub be located?
4. Set up the Economic Order Quantity model given the information below.
Annual Demand
50,000 units
Order Cost
$150 per order
Unit Cost
$100 per unit
Inventory Holding
15% of unit cost
What is the Economic Order Quantity of the product?
What is the total annual cost when EOQ is ordered each time?
5. Given the following information, formulate a continuous-review inventory management system. Assume that there are 50 weeks in a year.
Item cost
$80 per unit
Standard deviation of weekly demand
Order cost
$40
50 per week
Annual holding cost (%)
10% of item cost
Lead time
1 week
Annual demand
50,000
Target service level
98%
Average demand
1,000 per week
Compute the order quantity and reorder point.
6. The annual demand for a notebook binder at Duncan’s Stationary Shop is 9,000 units. The owner operates her business 300 days a year and reviews the inventory once every 5 days. It takes 4 days to receive a delivery from the supplier of the notebook binder once an order is placed. The standard deviation of the daily demand is 4. How many notebook binders should the owner order each time?
City
Map coordinates (x, y)
Shipping load (in tons)
A
(5, 15)
20
B
(20, 5)
15
C
(15, 10)
10
D
(10, 5)
5
Explanation / Answer
1)
Total cost = Fixed cost +Quantity * variable cost
Process A total cost = 10, 00,000 + 4Q
Process B total cost = 15, 00,000 + 3Q
Cross over point is the point where total costs are equal
10, 00,000 + 4Q = 15, 00,000 + 3Q
Q = 5, 00,000 or 0.5 million
Process A will incur a lower total cost at the range of 0 to 5, 00,000 because fixed cost is 10, 00,000 is less when compare with Process B.
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