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a)
To determine: The per unit holding cost of a laptop with Country U production.
a)
Explanation of Solution
Given information:
Safety factory (SF) = 2.25
Holding cost per laptop per week in Country U (H) = $4
Holding cost per laptop per week in Country T (H) = $3.50
Lead time in Country U (L) = 1 week
Lead time in Country T (L) = 8 weeks
Shipping cost (C) = $2
Weekly demand (D) = 1,000 laptops
Standard deviation (S) = 800
Calculation of on-order inventory:
Calculation of on-hand inventory:
Calculation of total average inventory:
Calculation of average weekly holding cost:
Calculation of average holding cost per unit:
The per unit holding cost of a laptop with Country U production is $14.184.
b)
To determine: The per unit holding cost of a laptop with Country T production.
b)
Explanation of Solution
Given information:
Safety factory (SF) = 2.25
Holding cost per laptop per week in Country U (H) = $4
Holding cost per laptop per week in Country T (H) = $3.50
Lead time in Country U (L) = 1 week
Lead time in Country T (L) = 8 weeks
Shipping cost (C) = $2
Weekly demand (D) = 1,000 laptops
Standard deviation (S) = 800
Calculation of on-order inventory:
Calculation of on-hand inventory:
Calculation of total average inventory:
Calculation of average weekly holding cost:
Calculation of average holding cost per unit:
The per unit holding cost of a laptop with Country T production is $46.90.
c)
To determine: The change in cost per laptop if the production switched to Country T.
c)
Explanation of Solution
Given information:
Safety factory (SF) = 2.25
Holding cost per laptop per week in Country U (H) = $4
Holding cost per laptop per week in Country T (H) = $3.50
Lead time in Country U (L) = 1 week
Lead time in Country T (L) = 8 weeks
Shipping cost (C) = $2
Weekly demand (D) = 1,000 laptops
Standard deviation (S) = 800
Assembly time (T) = 40 minutes
Cost of labor in Country U (W) = $40 per hour
Cost of labor in Country T (W) = $10 per hour
When production is in Country U:
Calculation of labor cost per unit:
There is no transportation cost. The average holding cost per unit is $14.184.
Calculation of total cost:
When production is in Country T:
Calculation of labor cost per unit:
The shipping cost is $2. The average holding cost per unit is $46.90
Calculation of total cost:
Cost difference when the production moves from Country U to Country T:
The cost increases by $14.72.
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Chapter 11 Solutions
Operations Management
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