The OM Explorer and POM for Windows software is available to all students using the 11th edition of this textbook. Go to http://www.pearsonhighered.com/krajewski to download these computer packages. If you purchased MyOMLab, you also have access to Active Models software and significant help in doing the following problems. Check with your instructor on how best to use these resources. In many cases, the instructor wants you to understand how to do the calculations by hand. At the least, the software provides a check on your calculations. When calculations are particularly complex and the goal is interpreting the results in making decisions, the software replaces entirely the manual calculations.
Types of Inventory
1. A part is produced in lots of 1,000 units. It is assembled from 2 components worth $50 total. The value added in production (for labor and variable overhead) is $60 per unit, bringing total costs per completed unit to $110. The average lead time for the part is 6 weeks and annual demand is 3,800 units, based on 50 business weeks per year.
a. How many units of the part are held, on average, in cycle inventory? What is the dollar value of this inventory?
b. How many units of the part are held, on average, in pipeline inventory? What is the dollar value of this inventory? (Hint: Assume that the typical part in pipeline inventory is 50 percent completed. Thus, half the labor and variable overhead cost has been added, bringing the unit cost to $80$80, or $50+$60∕2$50+$60∕2).