Response to the following:
1. Jill's Job Shop buys two parts (Tegdiws and Widgets) for use in its production system from two different suppliers. The parts are needed throughout the entire 52-week year. Tegdiws are used at a relatively constant rate and are ordered whenever the remaining quantity drops to the reorder level. Widgets are ordered from a supplier who stops by every three weeks. Data for both products are as follows:
Item Tegdiw Widget
|
Annual demand
|
$10,000
|
$5,000
|
|
Holding cost (% of item cost)
|
20%
|
20%
|
|
Setup or order cost
|
$150.00
|
$25.00
|
|
Lead time
|
4 weeks
|
1 week
|
|
Safety stock
|
55 units
|
5 units
|
|
Item cost
|
$10.00
|
$2.00
|
2. Item X is a standard item stocked in a company's inventory of component parts. Each year the fi rm, on a random basis, uses about 2,000 of item X, which costs $25 each. Storage costs, which include insurance and cost of capital, amount to $5 per unit of average inventory.
Every time an order is placed for more of item X, it costs $10.
a. Whenever item X is ordered, what should the order size be?
b. What is the annual cost for ordering item X?
c. What is the annual cost for storing item X?
3. In the past, Taylor Industries has used a fixed-time period inventory system that involved taking a complete inventory count of all items each month. However, increasing labor costs are forcing Taylor Industries to examine alternative ways to reduce the amount of labor involved in inventory stockrooms, yet without increasing other costs, such as shortage costs. Here is a random sample of 20 of Taylor's items.
Item # Annual Us. Item # Annual Us.
|
1
|
$1,500
|
11
|
$13,000
|
|
2
|
12,000
|
12
|
600
|
|
3
|
2,200
|
13
|
42,000
|
|
4
|
50,000
|
14
|
9,900
|
|
5
|
9,600
|
15
|
1,200
|
|
6
|
750
|
16
|
10,200
|
|
7
|
2,000
|
17
|
4,000
|
|
8
|
11,000
|
18
|
61,000
|
|
9
|
800
|
19
|
3,500
|
|
10
|
15,000
|
20
|
2,900
|
a. What would you recommend Taylor do to cut back its labor cost? (Illustrate using an ABC plan.)
b. Item 15 is critical to continued operations. How would you recommend it be classified?