# Chapter 8 answers - Chapter 8 EXERCISES Exercise 2(Easy 20...

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Chapter 8 EXERCISES Exercise 2 (Easy, 20 minutes) a. Cost understanding b. Cost reduction c. Cost avoidance for the cost of call-forwarding; the increase in costs for staff shows an understanding of client needs and services to be provided d. Cost reduction e. Cost reduction f. Cost avoidance of what would have been an increase in costs with the installation of the new telephones; also shows cost understanding because you knew why the cost would increase Exercise 6 (Easy, 15 minutes) Carrying costs Storage \$0.15 Handling .05 Insurance .06 Total \$0.26 Exercise 8 (Easy, 20 minutes) a. EOQ, axles = [(2 x 2,000 x \$20) ÷ \$0.50] = 400 EOQ, wheels = [(2 x 4,000 x \$36) ÷ \$3.00] = 310 (rounded) b. Average inventory, axles = 400 ÷ 2 = 200 Average inventory, wheels = 310 ÷ 2 = 155 c. The memo should address the fact that the EOQ model generates ordering quantities for axles and wheels that fail to reflect the relative quantities of the items needed for production. A rational inventory policy should have about twice as many wheels on hand as axles; this reflects the proportion demanded by production. Exercise 9 (Easy, 20 minutes) a. EOQ = [(2 x 7,300 x \$0.75) ÷ \$.48] = 151 kilograms. b. Daily usage = 7,300 ÷ 365 = 20 kilograms. per day Order point = 20 x 18 = 360 kilograms;

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Chapter 8 c. Safety stock = 20 x 3 = 60 kilograms d. 20 x 0.1 x 18 = 36 kilograms e. for maximum usage over lead time: (0.1 x 20 kgs)(18 days + 3 days) 42 for normal usage in extra 3 days(20 x 3) 60 Total safety stock 102 Normal usage during lead time 360 Order point 462 kilograms PROBLEMS Problem 8 (Moderate, 25 minutes) a. EOQ=The square root of (2 x 150,000) x \$60 ÷ \$5 = 1,897 litres b. Expected usage per day = 150,000 ÷ 300 days = 500 per day Safety stock = (550 – 500) x 10 = 500 c. Reorder point = (10 x 500) + safety stock = 5,000 + 500 = 5,500 d Safety stock = (550 – 500) x 12 = 600 Reorder point = (12 x 500) + 600 = 6,600 Problem 9 (Moderate, 20 minutes) a. EOQ = The square root of (2 x 250,000 x \$750 ÷ \$9) = 6,455 litres b. Expected usage during lead time = 250,000 ÷ 300 days = 833.33 Safety stock = (933.33 – 833.33) x 7 = 700 c. Reorder point = (7 x 833,33) + safety stock = 6,533.31 d. Safety stock = (933.33 – 833.33) 10 = 1,000 Reorder point = (10 x 833.33) + safety stock = 8,333.33 + 1,000 = 9,333.33
Chapter 8 Problem 11 (Moderate 25 minutes) Costs with outsourcing, 24,000 x \$18 \$432,000 Costs with insourcing: Accounts payable clerk, 7 x 27,000 189,000 Accounts payable supervisor 41,700 Supplies 3,400 Computer costs 22,500 Benefits, 0.18 x (189,000 + 41,700) 41,526 \$298,126 The accounts payable function should not be outsourced, as is cheaper to process the accounts payable internally. Other concerns with outsourcing include quality and confidentiality.

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Chapter 8 Problem 12 (Moderate, 25 minutes) Costs with outsourcing, 90,000 x \$40 = \$3,600,000 Costs with insourcing: 30 drivers and helpers, with benefits \$1,062,000 Fuel and repairs 450,000
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Chapter 8 answers - Chapter 8 EXERCISES Exercise 2(Easy 20...

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