Reference no: EM132198381

Assignment One

Question One

Finley Heaters Inc. is a mid-sized manufacturer of residential water heaters. Sales have grown during the last several years, and the company's production capacity needs to be increased. The company's management wonders if national housing starts might be a
good indicator of the company's sales.

Year	National Housing Starts (millions)	Finley Heaters' Annual Sales (millions of dollars)
1	6.2	57
2	5.1	59
3	6.5	65
4	7.9	78
5	6.3	72
6	7.4	80
7	7.0	86

a. Develop a simple linear regression analysis between Finley Heaters' sales and national housing starts. Forecast Finley Heaters' sales for the next two years. The National Home Builders Association estimates that national housing starts will be 7.1 million and 8.0 million for the next two years.

b. What percentage of variation in Finley Heaters' sales is explained by national housing starts?

c. Would you recommend that Finley Heaters management use forecast from Part a to plan facility expansion? Why or why not?

Question Two

a) Emery Pharmaceuticals uses an unstable chemical compound that must be kept at in an environment where both temperature and humidity can be controlled. Emery uses 800 pounds per month of the chemical, estimates the holding cost to be 50% of the purchase price (because of spoilage), and estimates order costs to be $50 per order. The cost schedules of two suppliers are as follows:

Vendor 1		Vendor 2
Quantity	Price/lb ($)	Quantity	Price/lb ($)
1-499	17.00	1-399	17.10
500-999	16.75	400-799	16.85
1000+	16.50	800-1199	16.60
		1200+	16.25

i) What is the economic order quantity for each supplier?
ii) What quantity should be ordered, and which supplier should be used?
iii) What factor (s) should be considered besides cost?
b) Discuss the reasons for and against holding excess inventories

Question Three

Demand and Working Days
	January	February	March	April	May	June	Totals
Demand Forecasts	500	600	650	800	900	800	4250
Number of Working Days	22	19	21	21	22	20	125

                                                                                                        Costs

Materials.....................................................................K400 per unit

Inventory holding cost.................................................... K4 per unit per month

Marginal cost of stock out................................................K80 per unit per month

Marginal cost of subcontracting...................................... ...K400 per unit

Hiring and training cost................................................... K200 per worker

Layoff cost.....................................................................K400 per worker

Labour hours required.....................................................4 hours per unit

Straight time cost (8 hours) ..............................................K50 per hour

Overtime cost..................................................................................K75 per hour

Beginning inventory is 200 units and safety stock requirement is 50% of monthly demand. Determine the cost of each of the following strategies:

i. Using the chase strategy (matching demand) assume opening workforce equal to the first month's requirement.

ii. A constant work force of 10, use inventory and stock-out

iii. A constant workforce of 10, use subcontracting.