HIJ Inc., manufactures a lawnmower part in lots of 250 units. The raw materials
ID: 429490 • Letter: H
Question
HIJ Inc., manufactures a lawnmower part in lots of 250 units. The raw materials cost for the part is $150, and the value added in manufacturing 1 unit from its components is $300, for a total cost per completed unit of $450. The lead-time to make the part is 3 weeks, and the annual demand is 4,000 units. Assume 50 working weeks per year.
a. How many units of the part are held, on average, as mower inventory? What is its value?
b. How many units of the part are held, on average, as pipeline inventory? What is its value?
Explanation / Answer
How many units of the part are held, on average, as cycle inventory? What is its value?
Solution:
Lot size = Q = 250 units
Raw material Cost = $150
Value added cost = $300
Total cost/unit = $450
Annual demand = 4000 units
Cycle inventory = Q/2 = 250/2 = 125 units
Cost of cycle inventory = Cycle inventory * total cost = 125 units * $450 = $56,250
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.