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Terminator, Inc., manufactures a motorcycle part in lots of 250 units. The raw materials cost for the part is $150, and the value added in manufacturing 1 unit from its components is $300, for a total cost per completed unit of $450. The lead time to make the part is 3 weeks, and the annual demand is 4,000 units. Assume 50 working weeks per year.
a. How many units of the part are held, on average, as cycle inventory? What is its value?
b. How many units of the part are held, on average, as pipeline inventory? What is its value?
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Develop a report for Figi Fabricating that will address the question of whether the company should continue to purchase the part from the supplier or begin to produce the part itself.
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