( This instance appears in the text edition on pages 463-464 of the 2nd edition and page 464 of the 3rd edition. I have changed the British ? mark to the U. S. $ mark on the pecuniary informations. You can utilize U. S. $ for all pecuniary answers. ) FabQual Ltd. Industries parts and subassemblies for a figure of small-volume makers of specialised building equipment. including bulldozers. graders. and cement sociables. FabQual besides manufactures and distributes trim parts. The company has made a forte of supplying trim parts for equipment no longer in production ; this includes wear parts that are no longer in production for any OEM. The Materials Management Group ( MMG ) orders parts – both for bringing to a customer’s production line and for spares – from the Fabrication Department. Spare parts are stocked in a Finished Goods Store. FabQual’s portion figure 650810/ss/R9/o is a wear portion made merely for spares demand. It has had demand averaging 300 units per hebdomad for more than a twelvemonth. and this degree of demand is expected to prevail for at least 4 more old ages. The standard divergence of hebdomadal demand is 50 units. ( You can disregard this standard divergence information. You will non necessitate to work with it for the inquiries I have asked. ) The MMG has been telling 1300 units monthly of portion figure 650810/ss/R9/o from the Fabrication Department to run into the forecast one-year demand of 15. 600 units.
The order is placed in the first hebdomad of each month. In order to supply Fabrication with scheduling flexibleness. every bit good as to assist with be aftering natural stuff demands. a 3-week fabrication lead clip is allowed for parts. In the Fabrication Department. 2 hours is now allowed for each apparatus for a tally of portion figure 650810/ss/R9/o. This clip includes strip-down of the old apparatus ; bringing of natural stuffs. drawings. tools and fixtures. etc ; and buildup of the new apparatus. The 2-hour apparatus clip is a recent betterment over the old 4 hours. as the consequence of apparatus decrease activities in the Fabrication Department. The Fabrication Department charges $ 20 per hr for apparatuss. Part figure 650810/ss/R9/o enters the Finished Goods Stores at a full fabrication cost of $ 55. The Financial Office requires a 25 % per point per twelvemonth cost for stock list planning and control. ( This is your one-year keeping cost rate ) .
1. Calculate the entire one-year cost of the present ordination policy for portion figure 650810/ss/R9/o. 2. Calculate the batch size for portion figure 650810/ss/R9/o if FabQual were to utilize an economic order measure ( EOQ ) . 3. Calculate the entire one-year cost of utilizing an economic order measure for portion figure 650810/ss/R9/o? 4. Determine the reorder point for portion figure 650810/ss/R9/o if demand was ever happening at the unvarying rate of 300 units per hebdomad. 6. Determine the cost deductions of a alteration from the present strategy to one based on the economic order measure.
Write a study to the manager of the Materials Management Group ( MMG ) in which you provide your recommendations on how this stock list portion ( portion figure 650810/ss/R9/o ) should be managed. Supply principle for your recommendations ( your principle will come from the above computations ) .