A part is produced in lots of 1,000 units. It is assembled from 2 components wor

Question

A part is produced in lots of 1,000 units. It is assembled from 2 components worth $50 total. The value added in production (for labor and variable overhead) is $60 per unit, bringing total costs per completed unit to $110. The average lead time for the part is 6 weeks and annual demand is 3,800 units, based on 50 business weeks per year.

a. How many units of the part are held, on average, in cycle inventory? What is the dollar value of this inventory?

b. How many units of the part are held, on average, in pipeline inventory? What is the dollar value of this inventory? (Hint: Assume that the typical part in pipeline inventory is 50 percent completed. Thus, half the labor and variable overhead cost has been added, bringing the unit cost to $80 $80, or $50 + $60 2 $50+$602).

Explanation / Answer

Given:

Calculation:

Average Inventory= Demand/2= Q/2=1000/2=500 units

The value of thois inventory is =500 units* (unit price)=500*(50+60)=500*110=$55,000

Assumption for the next question: Pipeline contains 50%completed.and unit cost of this $80

Therefore Average inventory in pipeline should be:

dL, where d is the number of units prodcued in a week* L the lead time

=(3800units)/ (50 wks/yr) *6 weeks=456 units

Cost of this inventory in pipeline will be 456 units*80=$36,480

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.