Question

A laptop manufacturer wants to compare the total cost of assembling its laptops in the United States versus Taiwan. All of the laptops will be sold in the United States. To evaluate inventory, it uses a safety factor of 2.25. The holding cost per laptop is $4 per week in the United States and $3.50 per week in Taiwan. The lead time with U.S. production is one week, whereas it is eight weeks with production in Taiwan. In addition, it costs $2 to ship laptops to the United States from Taiwan. Weekly demand is 1000 laptops, with a standard deviation of 800. a. What is the per unit holding cost of a laptop with U.S. production

Answer 1

$14.18

Step-by-step explanation:

safety factor = 2.25

holding cost per laptop

= $4 per week in USA

= $3.5 per week in Taiwan

weekly demand = 1000

std = 800

cost of shipping laptops to USA from Taiwan = $2

Lead time of production ;

I week for production in USA

8 weeks production in Taiwan

Determine the per unit holding cost of a laptop with U.S production

The On-order inventory with U.S. production

= 1 * 1,000 = 1,000 units.

Calculate The on-hand inventory with U.S. production

= √(1 + 1) * std * safety factor = √2 * 800 * 2.25 = 2,546

Hence The total average inventory

= 1,000 + 2,546 = 3,546 units.

The average weekly holding cost

( holding cost per laptop ) * ( Total average inventory )

= $4 * 3,546 = $14,182.

Therefore The average holding cost per unit with U.S. production

( Average weekly holding cost ) / ( weekly demand )

= $14,182 / 1,000 = $14.18