ec-1. Bell Computer Company,2. VanOyen Manufacturing and 3. Davis Instruments

1.
Bell Computer Company
Bell computers purchases IC chips
from a supplier at $350/chip. The holding cost has been estimated to be 10% of
purchase price. It has estimated that Bell will need 4800 chips per year. Bell operates
250 day per year. The company wants to maintain a service level of 95%. The
cost placing an order is $120/order. Based on past Bell has estimated that
demand during the 10 day lead time is normally distributed with a mean of 192
and a standard deviation of 10.
Given the cost of acquiring the chip
an executive group has been studying the option of manufacturing the IC chip in
house. Given the resources available they can build a facility with a production
capacity of 30 units per day. The demand during the 15 day lead time demand is
approximately normally distributed, with a mean of 288 units and a standard
deviation of 20 units. Production costs
are expected to be $325 per part. Setup cost for a manufacturing run is assessed
at $600/setup.
For option one calculate the following:
a) What is the Economic order
quantity?
b) What is the safety stock?
c) What is the reorder point?
d) What is the total cost
including cost of purchasing the parts.
For option two calculate the
following:
e) What is the Economic
production quantity?
f) What is the safety stock?
g) What is the reorder point?
h) What is the total cost
including cost of manufacturing the parts.
Which option should they choose?
2.
VanOyen Manufacturing
M.
P. VanOyen Manufacturing has gone out on bid for a regulator component.
Expected demand is 8400 units per year. The item can be purchased from either
Allen Manufacturing or Baker Manufacturing. Their price lists are shown in the
table. Ordering cost is $ 50, and annual holding cost per unit is estimated to
be 30% of purchase price. Vendor 1’s base price is $16 and Vendor 2’s base
price is $16.10.
a) What is the Economic order
quantity for each supplier?
b) What quantity should be
order and which supplier should be used?
c) What is the total cost?
d) How many orders will be
placed in a year?

Vendor 1

Vendor 2

Quantity

Discount

Quantity

Discount

1-499

0%

1-399

0%

500-999

3.00%

400-799

3.00%

1000+

6%

800+

6%

3.
Davis
Instruments
Davis Instruments has two manufacturing
plants located in Atlanta, Georgia.
Product demand varies considerably from month to month, causing Davis
extreme difficulty in workforce scheduling.
Recently Davis started hiring temporary workers supplied by workforce
unlimited, a company that specializes in providing temporary employees for
firms in the greater Atlanta area.
WorkForce Unlimited offered to provide temporary employees under three
contract options that differ in terms of the length of employment and the
cost. The three options are summarized:

Option

Length of Employment

Cost

1

One month

$2,000

2

Two months

$4,800

3

Three

$7,500

The longer contract periods are more
expensive because WorkForce Unlimited experiences greater difficulty finding
temporary workers who are willing to commit to longer work assignments.Over the
next six months, David projects the following needs for additional employees:

Month

January

February

March

April

May

June

Employees Needed

10

23

19

26

20

14

Each month, Davis can hire as many
temporary employees as needed under each of the three options. For instance, if Davis hires five employees
in January under Option2, WorkForce Unlimited will supply Davis with five
temporary workers who will work two months: January and February. For these workers, Davis will have to pay 5
($4800) = $24,000. Because of some merger negotiations under way, Davis does
not want to commit to any contractual obligations for temporary employees that
extend beyond June.
Davis’s
quality control program requires each temporary employee to receive training at
the time of hire. The training program
is required even if the person worked for Davis Instruments in the past. Davis estimates that the cost of training is
$875 each time a temporary employee is hired.
Thus, if a temporary employee is hired for one month. Davis will incur a training cost of $875,but
will incur no additional training cost if the employee is on a two-or
three-month contract.
Managerial
Report
Develop a model that can be used to
determine the number of temporary employees Davis should hire each month under
each contract plan in order to meet the projected needs at a minimum total cost. Include the following items in your report:
a) A
schedule that shows the number of temporary employees that Davis should hire
each month for each contract option.
b) If
the cost to train each temporary employee could be reduce to $700 per month,
what effect would this change have on the hiring plan? Explain. Discuss the implications that this
effect on the hiring plan has for identifying methods for reducing training
costs. How much of a reduction in
training costs would be required to change the hiring plan based on a training
cost of $875 per temporary employee?