TRAPILA - CASE STUDY_INVENTORY MANAGEMENT.pdf - TRAPILA MA...

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TRAPILA, MA. PHOEBE LYNN D. 15 OCTOBER 2020 EMG151-2 / B1 CASE STUDY INVENTORY MANAGEMENT Managers at Wagner Fabricating Company are reviewing the economic feasibility of manufacturing a part that the company currently purchases from a supplier. Forecasted annual demand for the part is 3,200 units. Wagner operates 250 days a year. Wagner’s financial analysis established a cost of Capital of 14% for the use of funds for investments within the company. In addition, over the past year $600,000 was the average investment in the company’s inventory. Accounting information shows that a total of $24,000 was spent on taxes and insurance related to the compan y’s inventory. In addition, an estimated $9,000 was lost due to inventory shrinkage, which included damaged goods as well as pilferage. A remaining $15,000 was spent on warehouse overhead, including utility expenses for heating and lighting. An analysis of the purchasing operation shows that approximately two (2) hours are required to process and coordinate an order for the part regardless of the quantity ordered. Purchasing

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