James Corporation produces bucket loader assemblies for thetractor industry. The product has a long-term life expectancy.Smith has decided to implement a JIT inventory system. Smith isdeciding whether to use ABC Co. or XYZ Co. as the supplier. Thefollowing relevant information is available for analysis:
One time cost to rearrange the shop floor into manufacturingcells is $305,000
Monthly demand is 1,000 units.
Purchase orders from ABC will cost $7.50 each. Purchase ordersfrom XYZ will cost $7.00 each.
ABC will charge $110 per unit. XYZ will charge $100 perunit.
ABCâs units will be inspected at a cost of 30 cents perunit.
Smithâs required annual rate of return is 5%.
Stock-out costs are expected to be $3.50 per unit for ABC and$3.00 per unit for XYZ.
Stock-out units are expected to be 5% of the order quantity forABC and 5% for XYZ. These stockouts are anticipated to occur duringeach reorder period.
Other annual carrying costs are 1% of the unit purchase cost forABC and for XYZ.
Question:
1. From a quantitativeperspective, which supplier should Jones use to implement the JITsystem? Show the computations supporting your decision.Note that your solution should bein professional format, and should include a proper heading, date,consistent formatting, etc.
2. What is the minimum amount of cost savings (in dollars) thatSmith would need to save by implementing the JIT system in orderfor the project to yield an acceptable return on investment?
Please show answer in Excel format
James Corporation produces bucket loader assemblies for thetractor industry. The product has a long-term life expectancy.Smith has decided to implement a JIT inventory system. Smith isdeciding whether to use ABC Co. or XYZ Co. as the supplier. Thefollowing relevant information is available for analysis:
One time cost to rearrange the shop floor into manufacturingcells is $305,000
Monthly demand is 1,000 units.
Purchase orders from ABC will cost $7.50 each. Purchase ordersfrom XYZ will cost $7.00 each.
ABC will charge $110 per unit. XYZ will charge $100 perunit.
ABCâs units will be inspected at a cost of 30 cents perunit.
Smithâs required annual rate of return is 5%.
Stock-out costs are expected to be $3.50 per unit for ABC and$3.00 per unit for XYZ.
Stock-out units are expected to be 5% of the order quantity forABC and 5% for XYZ. These stockouts are anticipated to occur duringeach reorder period.
Other annual carrying costs are 1% of the unit purchase cost forABC and for XYZ.
Question:
1. From a quantitativeperspective, which supplier should Jones use to implement the JITsystem? Show the computations supporting your decision.Note that your solution should bein professional format, and should include a proper heading, date,consistent formatting, etc.
2. What is the minimum amount of cost savings (in dollars) thatSmith would need to save by implementing the JIT system in orderfor the project to yield an acceptable return on investment?
Please show answer in Excel format
