Question

1. A part is produced in lots of 1,000 units. It is assembled from two components worth $50 total. The value added in production (for labor and variable overhead) is $60 per unit, bringing total costs per completed unit to $110. The average lead time for the part is 6 weeks and annual demand is 3,800 units, based on 50 business weeks per year. a. How many units of the part are held, on average, in cycle inventory

Answer 1

A. Average cycle inventory 500 units

Value of cycle inventory $55,000

B. Average pipeline inventory 456 units

Value of the pipeline inventory $36,480

Explanation:

a. Calculation to determine How many units of the part are held, on average, in cycle inventory

Calculation for Average cycle inventory

Average cycle inventory=1000/2

Average cycle inventory=500 units

Therefore the Average cycle inventory is 500 units

Calculation for Value of cycle inventory

Value of cycle inventory=(500 units) *($50+$60)

Value of cycle inventory=(500 units*$110)

Value of cycle inventory=$55,000

Therefore the Value of cycle inventory is $55,000

b. Calculation to determine Avarage Pipeline inventory and Value of the pipeline inventory

First step is to calculate the unit cost using this formula

Unit cost = Material + 50%of labor and variable overhead

Let plug in the formula

Unit cost=$50+(50%*$60)

Unit cost= $50 + $30

Unit cost= $80

Now let calculate the Average pipeline inventory

Average pipeline inventory = = [(3800 units/year)/(50wks/yr)] x (6 weeks)

Average pipeline inventory= 456 units

Therefore Average pipeline inventory is 456 units

Calculation to determine Value of the pipeline inventory

Value of the pipeline inventory = (456 units) x ($50+$30)

Value of the pipeline inventory=456 units×$80

Value of the pipeline inventory= $36,480

Therefore the Value of the pipeline inventory is $36,480