Supply Chain Decisions

Supply Chain Decisions

Question 4

New Process Values For Fast Finish

• Fixed cost = $230,000
• Variable cost per unit = $0.23
• Quantity sold = 160,000 units

Process Data From Downhill Boards

• Fixed cost = $125,000
• Variable cost per unit = $0.9
• Quantity sold = 160,000 units

(a). The annual cost for the new process introduced by Fast Finish is calculated as:

Total cost=Total Fixed Cost + Total Variable Cost

Total Variable Cost=Variable cost per unit × Quantity

• =130,000+(0.23×160,000)
• =$166,800

(b) The demand level where it makes sense economically to outsource the finishing process will equal the cost of both processes.

Taking the demand quantity at this level as Q.

The Annual Cost of the Existing Process

Total cost = Total Fixed Cost + Total Variable Cost

• =125,000+0.9Q

The Annual Cost of the New Process

• Total cost=Total Fixed Cost+Total Variable Cost
• =230,000+0.23Q

At the point of indifference, Total cost of existing process=Total cost of new process. Therefore:

• 125,000+0.9Q=230,000+0.23Q

Making Q the subject of the equations.

• Q=(230,000-125,000)/0.3
• Q=156,717 units

Therefore, outsourcing would make sense economically at a demand level of 156,717 units and beyond.

(c) Additional factors to be considered when making the outsourcing decision.

1. Payment strategy offered by the outsourcing supplier.
2. Outsourcing supplier capacity and ability to meet the outsourcing capacity.
3. The quality of the finished product.

Question 6

Proposed Service by SBARG Values

• Fixed cost = $75,000
• Variable cost per unit = $0.23
• Quantity in sales = 2,000 units

Current Service by Employed Clerks

• Fixed cost = $111,600
• Variable cost per unit = $10
• Quantity in sales = 2,000 units

a). Cost of employing clerks

Total cost=Total Fixed Cost+Total Variable Cost

• Total Variable Cost=Variable cost per unit×Quantity
• =111,600+(10×2,000)
• =$131,600

b) Cost of using SBARG to handle the accounting work.

• Total cost=Total Fixed Cost+Total Variable Cost
• Total Variable Cost=Variable cost per unit×Quantity
• =75,000+(30×2,000)
• =$135,000

c). At the indifferent point the total costs for the two options will be equal.

Total cost of employing clerks =Total cost of outsourcing to SBARG

Cost Of Employing Clerks

Total cost=Total Fixed Cost + Total Variable Cost

Total Variable Cost=Variable cost per unit × Quantity

• =111,600+(10×2,000)
• =$131,600

Cost of Using SBARG to Handle the Accounting Work

Total cost = Total Fixed Cost + Total Variable Cost

Total Variable Cost = Variable cost per unit × Quantity

• =75,000+(VC×2,000)
• =75,000+2000VC

At the Indifferent Point

Total cost of employing clerks=Total cost of outsourcing to SBARG

• 131,600=75,000+2000VC
• VC=(131,600-75,000)/2,000
• =$28.3

Therefore, at a variable cost of $28.3 from SBARG, Cal’s Carpentry will be indifferent to the two options.

References

Reid, R. D., & Sanders, N. R. (2016). Operations Management, Binder Ready Version: An Integrated Approach. John Wiley & Sons.

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Supply Chain Decisions

Complete problem 4 on page 154 and problem 6 (parts a, b, and c only) on page 154 of your textbook.

For help on how to complete these problems, see the Solved Problems on pages 152–153.

When completed, submit your answers as an attachment in this assignment. Be sure to include your work with the answer. You need to provide a summary and/or rationale useful in interpreting the supply chain decisions results.

Supply Chain Decisions Scoring Guide

Due Date: Unit 5

Percentage of Course Grade: 2%.

CRITERIA	DISTINGUISHED
Accurately solves all computation aspects of the supply-chain decisions problem. 50%	Accurately solves all computation aspects of the problem and shows work.
Provides summary, and/or rationale useful in interpreting the supply-chain decisions results. 50%	Accurately summarizes salient points with supporting rationale for interpreting results.