Question

A part is produced in lots of 1,000 units. It is assembled from 2 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.1.1 What is the Average Cycle Inventory? (The units of the parts held, on average, in cycle inventory)1.2. What is the Pipeline Inventory? (The units of the part held, on average, in pipeline inventory)Please show work

Answer 1

A. 55,000

B.$36,480

Step-by-step explanation:

a. Average cycle inventory

=Q÷2

=1000÷ 2

=500 units

Value of cycle inventory

= (500 units) × ($50+$60)

=500 units ×110

= $55,000

b. Pipeline inventory let assume that typical part in pipeline is 50% completed.

Unit cost = material + half of labor and variable overhead

= $50 + $30 = $80

Average pipeline inventory = dL

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

= 456 units

Value of the pipeline inventory

= (456 units) x ($50+$30)

=456 units ×80

= $36,480