Homework Answers
Solution:
(a) Average cycle inventory is calculated as,
Average cycle inventory = Q / 2
Average cycle inventory = 1200 / 2
Average cycle inventory = 600 units
Dollar value of this inventory is calculated as,
Dollar value = Average cycle inventory x Total costs
Dollar value = 600 x $60
Dollar value of this inventory = $36,000
(b) Average pipeline inventory is calculated as,
Average pipeline inventory = Weekly demand x Lead time
Average pipeline inventory = [(3,700 units / 50 weeks)] x 6 weeks
Average pipeline inventory = 444 units
Dollar value of this inventory is calculated as,
Dollar value = Average pipeline inventory x Total costs
Given, the typical part in pipeline inventory is 50% completed,
Total costs = Material cost + (Labor + Variable overhead cost)/2
Total costs = $30 + ($30/2) = $45
Dollar value = 444 x $45
Dollar value of the inventory = $19,980
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