PROBLEM SITUATION #3
Peter’s Peripherals assembles multimedia upgrade kits --- sets of components for adding sound and video to desktop computers. The demand for their kits for the next four quarters is estimated in the table below. Unit manufacturing cost for each kit is $160. Holding costs on each kit is $80 per quarter. Any kit that must be delivered late is assessed a backorder cost of $120. Each worker is capable of finishing 10 kits per quarter. If the company chooses to vary work force levels, it will incur costs of $400 for each additional worker; $600 for each termination. The company currently has 28 employees.
5. In addition to the unit manufacturing cost, the work force variation costs of a pure chase strategy would be: a. $7,200 b. $3,600 c. $3,200 d. $6,800 e. none of the above
PROBLEM SITUATION #4
Davidson Hardware stocks an expensive composite-based plaster patching compound, currently classified “A” which is controlled by continuous review. Demand is variable, with an average of 6 pounds per week and a standard deviation of 2 pounds per week. Lead time is constant at one week. The firm’s current management of the product calls for a safety stock of one (1) pound.
1. The current reorder point for this product is ______ pounds. a. 5 b. 7 c. 6 d. 8 e. none of the above
2. The current cycle-service level is ______. a. 0.5 b. 1.29 c. 0.8413 d. 0.6915 e. none of the above
3. If Davidson wanted to change the safety stock so that the cycle-service level became 90 percent, the new reorder point would be ______. a. 6 b. 9.3 c. 8.6 d. 8 e. none of the above
4. Assume that Davidson has reviewed its inventory classifications, and that this item has been reclassified “B” and that it now managed by periodic review. Review occurs once per quarter. With a 90 percent cycle-service level, the proper order