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4. The annualized cost of acquiring capacity for the new Barracuda drives at Seagate is
calculated as \$25 per unit and the contribution margin for the product is \$45 per unit.
a. What service level (percentile of demand met) should Seagate target for in building
capacity? How much capacity will it build? The demand forecast for the Barracuda drives is
uniform between 100 and 200.
Statistics refresher: For uniform distribution of data, the answer for this is typically
Capacity = LL + (UL-LL)*SL where UL is lower limit, UL is upper limit and SL is service level.
So for a Uniform demand (40, 80), LL =40 and UL = 80; for a service level of 75%, the
Capacity to Build is 40+0.75*(80-40)= 70 Units.
b. How does this service level change, if Seagate outsources manufacturing to China, to
arrive at an annualized cost of capacity of \$10 per unit? How much capacity will it build?
c. How does this service level change if the inbound shipment cost per unit from China to US
reduces the margin per unit to \$35? How much capacity will it build?
d. Conduct the capacity calculations in all 3 scenarios above when the forecast for the
Barracuda drives is expected to follow the following distribution:
Demand will be
Probability
Cumulative
less than
Probability
100
0.1
0.1
120
0.2
0.3
140
0.3
0.6
160
0.1
0.7
180
0.15
0.85
200
0.15
1.0

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