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1. Assume that ABC Power Tools assembles industrial tools and handheld tools for
1. Assume that ABC Power Tools assembles industrial tools and handheld tools for the construction industry. Item 1 is a heavy-duty band saw that is assembled at the plant and shipped to an ABC distribution center for storage, waiting for an order to be placed. The table below summarizes the cost of holding Item 1 in storage for a one-year time period.
Cost category
cost
COGS
310
Inbound freight
25
Labor/unit
10
Labor/month
0.5
Space/unit/month
1.5
insurance/unit/year
1.5
interest/unit/year
12%
Taxes/year
2%
Loss &damage/year
1%
Obsolescene
1%
a) Compute the total inventory carrying cost of Item 1 for one year. State your answer in both dollar amounts as well as a percentage.
b) If ABC Power Tools sells Item 1 to its customers at $340 a unit, what should the minimum inventory turns be to make a profit?
2. Assume that ABC Power Tools from question 1 sells Item 1 through a typical home improvement retailer that has a finished goods warehouse, retailer DC, and a retail store. The days of supply and the inbound freight cost at each stage of the supply chain are given below. All other holding costs are the same as before. Compute the total inventory carrying cost of Item 1 at each stage, and express your answers in both dollar amounts and percentages.
Finished goods warehouse
Retail dc
Retail store
Days of supply
40
25
15
Inbound freight
25
30
35
3. A motorcycle manufacturer has its engine assembly plant in Ontario and its motorcycle assembly plant in Quebec. Engines are transported between the two plants using trucks, with each trip costing $750. The motorcycle plant assembles and sells 300 motorcycles each day. Each engine costs $500, and the company incurs an annual holding cost of 25% per year. a) How many engines should the company load onto each truck? What is the cycle inventory of engines?
b) The company has decided to reduce the number of engines loaded on each truck to 100. If each truck trip still costs $750, how does this decision affect annual inventory costs?
c) What should the cost of each truck be if a load of 100 engines is to be optimal?
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