Answer To: Case Study #3 – Inventory Management – Wagner Fabricating Company Your answers to these case studies...
Prince answered on Apr 20 2022
Case Study #3 – Inventory Management – Wagner Fabricating Company
Course Name
Student Name
Date
Wagner Fabricating is evaluating the advantages of producing their own part vs purchasing the product from a provider. The product has a demand of 3,200 units annually, and the company's financial cost of borrowing is 14%. Insurance and taxes are anticipated to have cost $24,000, according to the accounting team. Inventory was lost for $9,000, and warehousing overhead was $15,000. Regardless of the quantity needed, the purchasing operation takes two hours to process and arrange an order. Furthermore, when looking at the costs of 125 orders, salaries for the task average $28 per hour. To place an order, an average of $2,375 was spent on the phone, paper, and postage.
Executive summary
Forecasting for equipment capacity will be available for the part being considered for manufacturing. The monthly production capacity will be 1,000 units, with 5 months of manufacturing time available. Schedules can be created so that the part can be produced, according to operations management. The cost of production is projected to be $17 per unit. The only thing that worries management is the cost of trying to set up for this production. Labor expenditures and missed production time are expected to total $50 per hour. As a result, it will take 8 hours to set up the production equipment needed to make the units. In this research, we'll look at whether Wagner Fabricating Company should continue to acquire parts from the supplier or, if it's more cost-effective and time-effective, manufacture their own.
In the first section of the report, it is suggested that you analyse holding costs and include the relevant holding cost rate. To begin, the cost of borrowing is 14 percent of the inventory investment, which is converted to 0.14. Second, we divide the $24,000 in tax and insurance by the $600,000 in inventory. 24,000 divided by 600,000 equals.04. In addition, the entire inventory is used to determine inventory shrinkage. This appears to be 9000/600000, which equals .015. Then divide the total inventory by the warehouse overhead. This appears to be 15,000/600,000, which equals.025. Finally, we add every decimal to determine the holding cost rate by examining each of these holding costs. 0.22(0.14+0.014+0.015+0.025). By multiplying 0.2 by 100, the annual inventory holding cost comes out to be 22%.
In the second stage of the cost analysis, we'll look at how much it costs to order something. The provider will provide a reasonable estimate of the cost per order. The very first step is to calculate the report's ordering expenses per order. The various components are as follows: 2 hours of purchasing activity are offered at $28 per hour, and we increase this by two hours to get 28 multiplied by two (25 * 2) equals $56. Furthermore, the estimated additional order processing expenses are $2,375 per 125 units. Taking the $2,375 processing cost and dividing this by 125 units yields $19. Finally, add $56 to the purchase operation compensation and $19 to the additional processing charges. This works out to $75. As a result, the total cost of each order is $75.
In the third section, the setup expenses for the production process are examined. The cost of manufacturing setup is used to calculate...