Please see part 2: https://www.chegg.com/homework-help/questions-and-answers/ple
ID: 364020 • Letter: P
Question
Please see part 2: https://www.chegg.com/homework-help/questions-and-answers/please-see-part-2-https-wwwcheggcom-homework-help-questions-answers-please-see-part-1-plea-q25067344
Please see part 4 when finished: https://www.chegg.com/homework-help/questions-and-answers/questions-part-1-exhibit-2-blanchard-currently-estimates-setup-cost-per-bottle-run-s-blend-q25067995
Where:
Annual demand, K:
Demand for an item for year ending October 31, 1969, in cases of bottles
Setup cost, 5:
Setup cost per bottle run of an item
S = Blending setup cost + size changeover cost + label changeover cost + order processing cost
Blending setup cost = Actual cost of labor for blending during rectification and is different for each item
Size changeover cost = Actual cost of labor to reset all machines for a change in bottle size and is a constant $8.85 for all 158 items
Label changeover cost = Average cost of labor to reset labeling machine for a change in labels and is a constant $11.78 for all 158 items
Order processing cost = Average cost of administrative labor to process an order for a bottling run and is a constant $51.43 for all 158 items
Unit cost, C:
Cost per case of bottles of an item after bottling and packaging
C = Materials cost + bottling labor ± fixed overhead allocation + variable overhead + customs duty + federal distilled spirits tax + federal rectification tax
Materials cost = Cost of raw bulk, bottles, caps, and labels
Bottling labor = Cost of part-time bottling line labor per case of bottles produced and is a constant $0.10 per case for all 158 items
Fixed overhead allocation = Total company fixed overhead for the year divided by the number of cases sold per year and is a constant $1.31 per case for all 158 items
Variable overhead = Total direct expense (other than material and direct labor costs) resulting from production of one case of an item and is a constant $0.50 per case for all 158 items
Customs duty = Charge on imported spirits and varies with the alcoholic content of the beverage
Federal distilled spirits tax = IRS tax on all spirits sold in the United States and varies with the alcoholic content of the beverage
Federal rectification tax = IRS tax on certain mixed beverages and varies with the alcoholic content of the item
Canying cost percentage, K:
Percent of average inventory value which represents annual cost of carrying inventory of an item
K = Cost of capital + other carrying costs
Cost of capital = 9% for all items
Other carrying costs, including estimated costs of obsolescence, shrinkage, insurance, and year-end inventory tax = 2.5% for all items
Please see part 4 when finished: https://www.chegg.com/homework-help/questions-and-answers/questions-part-1-exhibit-2-blanchard-currently-estimates-setup-cost-per-bottle-run-s-blend-q25067995
Here are the quesitons from part 4:
QUESTIONS
Part 1. In Exhibit 2, Blanchard currently estimates the setup cost per bottle run to be: S = (blending setup cost) + (size changeover cost) + (label changeover cost) + (order processing cost). To your information, this formula over-estimates the true cost per bottle run by including unnecessary cost items in the calculation. Please discuss your recommendations for correcting this calculation and explain your reasoning.
Continue. The inventory holding cost per unit, per year is H = C x K, where C is the cost of producing one unit of product and K is carrying cost percentage. However, the estimation of the value of both C and K are inaccurate due to misconception in the original rationale behind the current formula. Let’s correct the calculation of C and K.
Part 2. The company currently calculates the value of C using the following formula in Exhibit 2: C = (materials cost) + (bottling labor) + (fixed overhead allocation) + (variable overhead) + (customs duty) + (federal distilled spirits tax) + (federal rectification tax). The detailed explanation to each cost category therein is also provided in Exhibit 2. To your information, some cost items in the calculation should not be accounted towards the unit cost of production. Please discuss your recommendations for correcting this calculation and explain your reasoning.
Part 3. The current calculation of the carrying cost percentage K includes the cost of capital (in percentage) for financing the production and inventory of the five alcoholic beverages. The company believes that the cost of capital arises from the interest rate of capital (i.e., bank credit), which is 9%. To your information, the company fails to recognize the true cost of the capital given the financial condition and alternative investment opportunity of the company. Please discuss your thoughts about what should be the true cost of capital (in %) and explain why.
Exhibit 3 Cost and Price Data Summary (dollars per case) Blanchard's 80 Proof Vodka Blanchard's 80 Proof Gin MacCoy &MacCoy; 86 Proof Scotch Triple 7 86 Proof Blended Whiskey Blanchard's 80 Proof Ron Cores Rum $43.99 1.08 1.27 .10 10.08 25.20 $47.39 2.74 1.27 .10 10.08 25.20 Wholesale price Materials-beverage Materials-packaging Direct labor State tax Federal distilled spirits tax Federal rectification tax Customs duty Variable overhead Fixed overhead allocation Full unit cost Profit before income tax $43.99 93 1.27 .10 10.08 25.20 $57.39 4.46 1.27 .10 10.08 27.09 $49.87 2.52 1.27 .10 10.08 27.09 .76 1.55 50 50 50 50 31 50 39.39 4.60 46.36 11.03 4.45 6.24 6.19Explanation / Answer
Answer:- The main problems which are faced by those firms which are having a physical product as in the case of Dell is that these firms require some kind of storage space. infrastructure for logistics and manpower to manage it. One of the main advantages which is there with eBay is that the firm does not have any physical product and the only resource which eBay can think of outsourcing is related to manpower. For eBay , outsourcing the customer support function specially email enquiries can be easily outsourced to other countries. The prime requirement of this outsourcing is that the people must know the language of English which is an international language so many knows about it. Almost 30% of its total email support is outsourced by eBay and it can be increased up to the scale of 50% with the help of Mrs. Daltons three tire plan.
Answer:- There are many critical issues related to the customer service inquires and the most important are social security numbers and credit card numbers, these activities should not be outsourced. There can be some doubt about the security of the communication infrastructure in some of the outsourcing countries along with the reliability of manpower hired in these countries. The investment which is required to ensure the credibility and security will increase the cost of the outsourcing. It will also require to conduct background check on the employees which is again a costly affair.
Answer:- A three party vendor is required in the process indicated by Mrs. Dalton including Build, operate, and transfer who will need to acquire or establish the operating center, staffing and then properly managing it. The main advantage of this model is that the risk associated with the establishment of assets and developing the manpower pool are confided to third party vendor only. While the unproven utilization of this method can be seen as the main demerit of this model. This option can be treated as the hybrid of two options i.e. implementing the outsourcing with the domestic and international vendors and secondly, elimination of middle man buying or creating the staff outsourcing for the eBay business. There are some amount of risks with the first option but it will reduce cost while the second option is best for cost reduction but has greater risks. When it comes to third party vendors in other countries, some level of opportunism can be seen but with the help of contract negotiation, this can be dealt with.
Answer:- They will decide in favor of BOT. In all the three plans , the best risk to reward ratio is related to BOT. This will allow the eBay to have the control over the outsourced assets resulting in cost reduction and have a better quality control . A good amount of research has been conducted by Mrs. Dalton and she will be able to convince the top management with her data.
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