Then answer the additional question given below

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Managerial Accounting: The Cornerstone of Business Decision-Making
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Chapter 3 / Exercise 3-54
Managerial Accounting: The Cornerstone of Business Decision-Making
Hansen/Mowen
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document.) Then answer the additional question given below. Finally, answer question 4 given at the end of the case. Several hints are provided below.Additional Question:Instead of supplying generic printers to the European market, another alternative that can be considered is to air freight the printers to the European DC. Using air freight will cut the shipment time from 5 weeks to 1 week. The transportation supervisor at HP was convinced that this was the correct approach. She felt that shortening the lead time means faster reaction to unexpected changes in product mix. That should mean lower inventory and higher product availability. Air freight is expensive, but it is worth it. Suppose that air freight cost an additional $10 per unit. Should this option be used instead of supplying generic printers? Hint: Does the reduction in inventory cost per unit offset the increase in the transportation cost per unit?Other Hints to the Case:In comparing different options (e.g., using air freight, localization of a generic printer at DCs, etc.), you need to quantify the benefits from each. The best way to do that is to use the inventory models to calculate the total cost of inventory per unit (for all DeskJet models) under different options.Use demand data from the exhibit entitled “DeskJet Demand Data from Europe.” Foryour convenience, the monthly mean and standard deviation have been calculated in thespreadsheet on ConnectAssume a 98% service level. The zvalue to ensure a 98% Service level is 2.06.Assume 4.33 weeks in a month.Note that this is a fixed time period modelwith review period = 1 week.Lead time for ocean transit = 5 weeks, and lead time for air freight = 1 week.While calculating annual inventory costs, remember to include pipeline (in-transit)inventory, safety stock, and cycle stocks.The annual average inventory cost is computed as follows:Annual Average Inventory Cost = (Safety Stock + Average In-Transit Inventory + Average Cycle Inventory)×(unit cost) ×.
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Managerial Accounting: The Cornerstone of Business Decision-Making
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Chapter 3 / Exercise 3-54
Managerial Accounting: The Cornerstone of Business Decision-Making
Hansen/Mowen
Expert Verified

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