Reference no: EM132198381
Assignment One
Question One
Finley Heaters Inc. is a mid-sized manufacturer of residential water heaters. Sales have grown during the last several years, and the company's production capacity needs to be increased. The company's management wonders if national housing starts might be a
good indicator of the company's sales.
|
Year
|
National Housing Starts
(millions)
|
Finley Heaters' Annual
Sales (millions of dollars)
|
|
1
|
6.2
|
57
|
|
2
|
5.1
|
59
|
|
3
|
6.5
|
65
|
|
4
|
7.9
|
78
|
|
5
|
6.3
|
72
|
|
6
|
7.4
|
80
|
|
7
|
7.0
|
86
|
a. Develop a simple linear regression analysis between Finley Heaters' sales and national housing starts. Forecast Finley Heaters' sales for the next two years. The National Home Builders Association estimates that national housing starts will be 7.1 million and 8.0 million for the next two years.
b. What percentage of variation in Finley Heaters' sales is explained by national housing starts?
c. Would you recommend that Finley Heaters management use forecast from Part a to plan facility expansion? Why or why not?
Question Two
a) Emery Pharmaceuticals uses an unstable chemical compound that must be kept at in an environment where both temperature and humidity can be controlled. Emery uses 800 pounds per month of the chemical, estimates the holding cost to be 50% of the purchase price (because of spoilage), and estimates order costs to be $50 per order. The cost schedules of two suppliers are as follows:
|
Vendor 1
|
|
Vendor 2
|
|
|
Quantity
|
Price/lb ($)
|
Quantity
|
Price/lb ($)
|
|
1-499
|
17.00
|
1-399
|
17.10
|
|
500-999
|
16.75
|
400-799
|
16.85
|
|
1000+
|
16.50
|
800-1199
|
16.60
|
|
|
|
1200+
|
16.25
|
i) What is the economic order quantity for each supplier?
ii) What quantity should be ordered, and which supplier should be used?
iii) What factor (s) should be considered besides cost?
b) Discuss the reasons for and against holding excess inventories
Question Three
|
Demand and Working Days
|
|
|
January
|
February
|
March
|
April
|
May
|
June
|
Totals
|
|
Demand Forecasts
|
500
|
600
|
650
|
800
|
900
|
800
|
4250
|
|
Number of Working
Days
|
22
|
19
|
21
|
21
|
22
|
20
|
125
|
Costs
Materials.....................................................................K400 per unit
Inventory holding cost.................................................... K4 per unit per month
Marginal cost of stock out................................................K80 per unit per month
Marginal cost of subcontracting...................................... ...K400 per unit
Hiring and training cost................................................... K200 per worker
Layoff cost.....................................................................K400 per worker
Labour hours required.....................................................4 hours per unit
Straight time cost (8 hours) ..............................................K50 per hour
Overtime cost..................................................................................K75 per hour
Beginning inventory is 200 units and safety stock requirement is 50% of monthly demand. Determine the cost of each of the following strategies:
i. Using the chase strategy (matching demand) assume opening workforce equal to the first month's requirement.
ii. A constant work force of 10, use inventory and stock-out
iii. A constant workforce of 10, use subcontracting.