a) i) What is Ross White's optimal order quantity?
Critical Path Method
The critical path is the longest succession of tasks that has to be successfully completed to conclude a project entirely. The tasks involved in the sequence are called critical activities, as any task getting delayed will result in the whole project getting delayed. To determine the time duration of a project, the critical path has to be identified. The critical path method or CPM is used by project managers to evaluate the least amount of time required to finish each task with the least amount of delay.
Cost Analysis
The entire idea of cost of production or definition of production cost is applied corresponding or we can say that it is related to investment or money cost. Money cost or investment refers to any money expenditure which the firm or supplier or producer undertakes in purchasing or hiring factor of production or factor services.
Inventory Management
Inventory management is the process or system of handling all the goods that an organization owns. In simpler terms, inventory management deals with how a company orders, stores, and uses its goods.
Project Management
Project Management is all about management and optimum utilization of the resources in the best possible manner to develop the software as per the requirement of the client. Here the Project refers to the development of software to meet the end objective of the client by providing the required product or service within a specified Period of time and ensuring high quality. This can be done by managing all the available resources. In short, it can be defined as an application of knowledge, skills, tools, and techniques to meet the objective of the Project. It is the duty of a Project Manager to achieve the objective of the Project as per the specifications given by the client.
Ross White’s Machine Shop is located in Central Trinidad and specializes in designing components for the energy industry in Trinidad and Tobago.
Ross White's machine shop uses 2500 brackets during the course of a year, and this usage is relatively constant throughout the year. These brackets are purchased from a supplier 100 miles away for $15 each, and the lead time is 2 days. The holding cost per bracket per year is $1.50 (or 10% of the unit cost) and the ordering cost is $18.75. There are 250 working days per year.
- a) i) What is Ross White's optimal order quantity?
- ii) What is the company's total annual cost of inventory?
- b) Ross White wants to re-consider his decision of buying the brackets and is considering making the brackets in-house. He has determined that set-up cost would be $25 in machinist time and lost production time. Ross estimates that the cost (including labor time and materials) of producing one bracket would be S 14.80, and that holding cost will be 10% of this cost.
- i) What is Ross Whites' optimal production quantity?
- ii) If Ross White uses the optimal production quantity, what would be his annual total cost of inventory?
- c) Upon hearing that Ross White is considering the producing the brackets in-house, the supplier has notified Ross that the purchase price would drop from $15 per bracket to $14.50 per bracket if Ross purchase the brackets in lots of 1000.
- i) What is the total annual cost of inventory if Ross buys the brackets in lots of 1000 at $14.50 each?
- ii) Given the options of purchasing the brackets at $15 each, producing them in-house at $14.80, and taking advantage of the discount, what is your recommendation to Ross White?
- d) After analyzing the cost of the various options for obtaining the brackets, Ross White recognizes that although he knows the lead time is 2 days, the average daily demand usually varies. Ross has kept careful records and has determined that the average daily demand is
normally distributed with a standard deviation of 2.5 units. If Ross would like to maintain a service level of 90%, what should his re-order point be? - e) At the last management meeting, the management of Ross White decided to change its inventory control model to a fixed time model, with the same lead time of 2 days and placing orders every 2 weeks, with the suppliers. Average daily demand remains the same and with the same standard deviation. Currently there are 700 units of inventory on hand. What size orders should Ross White’s Machine Shop place with suppliers?
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