WEBDEVELOPMENT Quiz: 6
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Background
Zhou Bicycle Company (ZBC), located in Seattle, is a wholesale distributor of bicycles and bicycle parts. Formed in 1981 by University of Washington Professor Yong-Pin Zhou, the firmâs primary retail outlets are located within a 400-mile radius of the distribution center. These retail outlets receive the order from ZBC within 2 days after notifying the distribution center, provided that the stock is available. However, if an order is not fulfilled by the company, no backorder is placed; the retailers arrange to get their shipment from other distributors, and ZBC loses that amount of business.
The company distributes a wide variety of bicycles. The most popular model, and the major source of revenue to the company, is the AirWing. ZBC receives all the models from a single manufacturer in China, and shipment takes as long as 4 weeks from the time an order is placed. With the cost of communication, paperwork, and customs clearance included, ZBC estimates that each time an order is placed, it incurs a cost of $65. The purchase price paid by ZBC, per bicycle, is roughly 60% of the suggested retail price for all the styles available, and the inventory carrying cost is 1% per month (12% per year) of the purchase price paid by ZBC. The retail price (paid by the customers) for the AirWing is $170 per bicycle.
ZBC is interested in making an inventory plan for 2016. The firm wants to maintain a 95% service level with its customers to minimize the losses on the lost orders. The data collected for the past 2 years are summarized in the following table. A forecast for AirWing model sales in 2016 has been developed and will be used to make an inventory plan for ZBC.
Month | 2014 | 2015 | 2016 Forecast |
January | 6 | 7 | 8 |
February | 12 | 14 | 15 |
March | 24 | 27 | 31 |
April | 46 | 53 | 59 |
May | 75 | 86 | 97 |
June | 47 | 54 | 65 |
July | 30 | 34 | 39 |
August | 18 | 21 | 27 |
September | 13 | 15 | 16 |
October | 12 | 13 | 15 |
November | 22 | 25 | 28 |
December | 38 | 42 | 47 |
Totals | 343 | 391 | 447 |
Bonus Question: Trace the inventory balance over the course of the year. Assume starting inventory balance of 35 bicycles. Also assume that retail orders are called into ZBC the first business day of every month and the first order to ZBC suppliers is on Jan 4, 2016.
Hint: Take into consideration orders to suppliers and supplier lead time, orders from retailers and lead time in shipments to retailers, as well as the estimated time between orders to suppliers. Consider creating a table such as:
What conclusions or recommendations do you draw from tracing the inventory in step 5?
Date | Description | Order Amount | Inventory In | Inventory Out | Inventory Balance | |
Beginning inventory | 35 | |||||
1/4/2016 | Monday | Retail order received | 8 | 35 | ||
1/4/2016 | Monday | Order placed to supplier | EOQ | 35 | ||
#### | XXXXX | Retail order sent out | 8 | 27 | ||
#### | XXXXX | Supplier order received | EOQ | ### | ||
2/1/2016 | Monday | Retail order received | 15 | ### | ||
#### | XXXXX | Retail order sent out | 15 | ### | ||
#### | XXXXX | Order placed to supplier | EOQ | ### |
Parisian Cosmetics Company is planning a one-month campaign for September to promote sales of one of its two cosmetics products. A total of $140,000 has been budgeted for advertising, contests, redeemable coupons, and other promotional activities. The following data have been assembled for their possible usefulness in deciding which of the products to select for the campaign:
Moisturizer | Perfume | |
Unit selling price | $55 | $60 |
Unit production costs: | ||
Direct materials | $ 9 | $14 |
Direct labor | 3 | 5 |
Variable factory overhead | 3 | 5 |
Fixed factory overhead | 6 | 4 |
Total unit production costs | $21 | $28 |
Unit variable selling expenses | 16 | 15 |
Unit fixed selling expenses | 12 | 6 |
Total unit costs | $49 | $49 |
Operating income per unit | $ 6 | $11 |
No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 22,000 additional units of moisturizer or 20,000 additional units of perfume could be sold from the campaign without changing the unit selling price of either product.
Required: | |
1. | Prepare a differential analysis as of August 21 to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. |
2. | Determine whether to promote moisturizer (Alternative 1) or promote perfume (Alternative 2). |
3. | The sales manager had tentatively decided to promote perfume, estimating that operating income would be increased by $80,000 ($11 operating income per unit for 20,000 units, less promotion expenses of $140,000). The manager also believed that the selection of moisturizer would reduce operating income by $8,000 ($6 operating income per unit for 22,000 units, less promotion expenses of $140,000). State briefly your reasons for supporting or opposing the tentative decision. |
Differential Analysis |
Promote Moisturizer (Alternative 1) or Promote Perfume (Alternative 2) |
August 21 |
1 | Promote Moisturizer | Promote Perfume | Differential Effect on Income | |
2 | (Alternative 1) | (Alternative 2) | (Alternative 2) | |
3 | ||||
4 | ||||
5 | ||||
6 | ||||
7 | ||||
8 | ||||
9 | ||||
10 |
2. Determine whether to promote moisturizer (Alternative 1) or promote perfume (Alternative 2).
A. Promote perfume.
B. Promote moisturizer.
C. The company is indifferent since the result is the same regardless of which alternative is chosen.
3. The sales manager had tentatively decided to promote perfume, estimating that operating income would be increased by $80,000 ($11 operating income per unit for 20,000 units, less promotion expenses of $140,000). The manager also believed that the selection of moisturizer would reduce operating income by $8,000 ($6 operating income per unit for 22,000 units, less promotion expenses of $140,000). State briefly your reasons for supporting or opposing the tentative decision.
The sales managerâs tentative decision should be_(accepted/opposed)____ . The sales manager_(erroneously/correctly)____ considered the full unit costs instead of the differential (additional) revenue and differential (additional) costs. An analysis similar to that presented in part (1) would lead to the selection of_perfume/moisturizor_____ for the promotional campaign because this alternative will contribute_(less/more)____ to operating income than would be contributed by promoting_perfume/moisturizor_______.