A part is produced in lots of 1,000 units. It is assembled from 2 components worth $50 total. The value added in produc- tion (for labor and variable overhead) is $60 per unit, bring- ing 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 pipe- line 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, or $50 + $60>2).
A part is produced in lots of 1,000 units. It is assembled from
2 components worth $50 total. The value added in produc-
tion (for labor and variable overhead) is $60 per unit, bring-
ing 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 pipe-
line 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, or $50 + $60>2).
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