Bell computers purchases IC chips from a supplier

Bell computers purchases IC chips from a supplier

Subject: Business    / Management
Question

1. Bell Computer Company

Bell computers purchases IC chips from a supplier at $350/chip. The holding cost
has been estimated to be 10% of purchase price. It has estimated that Bell will need
4800 chips per year. Bell operates 250 day per year. The company wants to maintain
a service level of 95%. The cost placing an order is $120/order. Based on past Bell
has estimated that demand during the 10 day lead time is normally distributed with a
mean of 192 and a standard deviation of 10.
Given the cost of acquiring the chip an executive group has been studying the option
of manufacturing the IC chip in house. Given the resources available they can build
a facility with a production capacity of 30 units per day. The demand during the 15
day lead time demand is approximately normally distributed, with a mean of 288
units and a standard deviation of 20 units. Production costs are expected to be
$325 per part. Setup cost for a manufacturing run is assessed at $600/setup.
For option one calculate the following:
a) What is the Economic order quantity?
b) What is the safety stock?
c) What is the reorder point?
d) What is the total cost including cost of purchasing the parts. For option two calculate the following:
e) What is the Economic production quantity?
f) What is the safety stock? g) What is the reorder point?
h) What is the total cost including cost of manufacturing the parts. Which option should they choose?
2. VanOyen Manufacturing M. P. VanOyen Manufacturing has gone out on bid for a regulator component. Expected
demand is 8400 units per year. The item can be purchased from either Allen
Manufacturing or Baker Manufacturing. Their price lists are shown in the table. Ordering
cost is $ 50, and annual holding cost per unit is estimated to be 30% of purchase price.
Vendor 1’s base price is $16 and Vendor 2’s base price is $16.10.
a) What is the Economic order quantity for each supplier? b) What quantity should be order and which supplier should be used?
c) What is the total cost?
d) How many orders will be placed in a year? Vendor 1
Quantity Discount
1-499
0%
500-999
3.00%
1000+
6% 3. Vendor 2
Quantity Discount
1-399
0%
400-799
3.00%
800+
6% Davis Instruments Davis Instruments has two manufacturing plants located in Atlanta, Georgia. Product
demand varies considerably from month to month, causing Davis extreme difficulty in
workforce scheduling. Recently Davis started hiring temporary workers supplied by
workforce unlimited, a company that specializes in providing temporary employees for
firms in the greater Atlanta area. WorkForce Unlimited offered to provide temporary
employees under three contract options that differ in terms of the length of employment
and the cost. The three options are summarized:
Option Length of Employment
1
One month
2
Two months
3
Three Cost
$2,000
$4,800
$7,500 The longer contract periods are more expensive because WorkForce Unlimited
experiences greater difficulty finding temporary workers who are willing to commit to
longer work assignments.Over the next six months, David projects the following needs
for additional employees:
Month
Employees
Needed Januar Februar
y
y
10 23 March
19 April
26 May June
20 14 Each month, Davis can hire as many temporary employees as needed under each of
the three options. For instance, if Davis hires five employees in January under Option2,
WorkForce Unlimited will supply Davis with five temporary workers who will work two
months: January and February. For these workers, Davis will have to pay 5 ($4800) = $24,000. Because of some merger negotiations under way, Davis does not want to
commit to any contractual obligations for temporary employees that extend beyond
June.
Davis’s quality control program requires each temporary employee to receive
training at the time of hire. The training program is required even if the person worked
for Davis Instruments in the past. Davis estimates that the cost of training is $875 each
time a temporary employee is hired. Thus, if a temporary employee is hired for one
month. Davis will incur a training cost of $875,but will incur no additional training cost if
the employee is on a two-or three-month contract.
Managerial Report
Develop a model that can be used to determine the number of temporary employees
Davis should hire each month under each contract plan in order to meet the projected
needs at a minimum total cost. Include the following items in your report:
a) A schedule that shows the number of temporary employees that Davis should hire each month for each contract option.
b) If the cost to train each temporary employee could be reduce to $700 per month, what effect would this change have on the hiring plan? Explain. Discuss the
implications that this effect on the hiring plan has for identifying methods for
reducing training costs. How much of a reduction in training costs would be
required to change the hiring plan based on a training cost of $875 per temporary
employee?