Answered: You work at International Soybeans and…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter17: Activity Resource Usage Model And Tactical Decision Making

Section: Chapter Questions

Problem 14E: Global Reach, Inc., is considering opening a new warehouse to serve the Southwest region. Darnell...

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You work at International Soybeans and your boss, Brenda Thompson, knowing that you are taking SC1x, asks you to help her to choose the best route to transport soybeans from Brazil to China.

She is currently considering two Brazilian ports to export the soybeans to Shanghai: Santos, located in the state of Sao Paulo, and Rio Grande, located in the state of Rio Grande do Sul. It takes on average 1.4 months, with a standard deviation of 0.2 months, to transport soybeans from the port of Santos to Shanghai, and the transportation cost for this route is $ 32.6 per ton. Similarly, it takes 1.6 months to ship soybeans to Shanghai through the port of Rio Grande, with a standard deviation of 0.1 months, and the transportation cost of this route is $33.7 per ton. The ocean transportation is made in bulk carrier ships, and the capacity of each ship is 60,000 tons. In both scenarios, the company would ship an economic order quantity in tons.

China’s annual demand of soybeans is normally distributed with an average of 60784202 tons and standard deviation of 10130700 tons. International Soybeans pays its Brazilian suppliers $300 per ton of soybean. The company’s holding charge is 15% per year and the company includes the transportation cost when calculating inventory costs. It costs $1200 to process the required paperwork to export the goods, independently of the volume shipped. The company’s cycle service level target is 90%. International Soybeans takes ownership of the soybeans from the moment they are delivered at any Brazilian port. For planning purposes, consider that a year has 360 days (12 months).

What is the annual cycle stock cost for exporting soybeans through the port of Santos?

What is the annual cycle stock cost for exporting soybeans through the port of Rio Grande?

What is the annual safety stock cost for exporting soybeans through the port of Santos?

What is the annual safety stock cost for exporting soybeans through the port of Rio Grande?

What is the annual pipeline inventory cost for exporting soybeans through the port of Santos?

What is the annual pipeline inventory cost for exporting soybeans through the port of Rio Grande?

You decide to investigate how changes in some parameters may influence the inventory costs.

Select all correct options:

Reducing the standard deviation of the lead time from Rio Grande to Shanghai will not affect the pipeline inventory cost.

Reducing the cycle service level target will not reduce cycle stock cost.

Reducing the variability of the demand will lower the safety stock cost.

If the company decides to increase its cycle service level target to 95%, the safety stock cost will increase in 5%, no matter which port is selected.

None of the above

Features Features Normal distribution is characterized by two parameters, mean (µ) and standard deviation (σ). When graphed, the mean represents the center of the bell curve and the graph is perfectly symmetric about the center. The mean, median, and mode are all equal for a normal distribution. The standard deviation measures the data's spread from the center. The higher the standard deviation, the more the data is spread out and the flatter the bell curve looks. Variance is another commonly used measure of the spread of the distribution and is equal to the square of the standard deviation.

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