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.

1.1 What is the Average Cycle Inventory? (The units of the parts held, on average, in cycle inventory)

1.2. What is the Pipeline Inventory? (The units of the part held, on average, in pipeline inventory)

Please show work

Explanation / Answer

a)

Average cycle inventory = Q/2

                                                = 1000/2

                                                = 500 units

b)

Average lead time = 6 weeks

Average demand rate = Annual demand/ no. of business weeks

                                           = 3800/50

                                                =76 units per week

Pipe line Inventory = Demand rate x average lead time

                                      = 76 x 6

                                      =456 units

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