Solution 1
TABLE 1: CRU FLOWS
| Customer | Receiving | Status 24 | Status 40 | Stored Orders | Orders at Suppliers | Status 41 | Status 42 | Status 20 | |
| Throughput(Units/Week) | 1000 | 1000 | 1000*.70 =700 | 1000*.30+ .15*700= 405 | 405 | 405 | 405 | 405 | 1000 |
| Inventory(Units) | 8000= 8*1000 | 500 | 1500 | 1000 | 500 | 405= 405*1 | 500+405 = 905 | 500 | 2000= 2*1000 |
| Flow Time(Weeks) | 8 | 0.5= 500/1000 | 2.14= 1500/700 | 2.46= 1000/405 | 1.23= 500/405 | 1 | 2.23 | 1.23= 500/405 | 2 |
Note:
· Numbers in Black are given
· Numbers in red are calculated by using formula Av. flow time = Inventory/Throughput
· Numbers in Green shows a constant flow in units after status 40 to status 42
Solution 2
Utilization = No. of units on rent / No. of units owned by CRU = Inventory on rent/ Total inventory
No. of units on rent = No. of units rented per week* No of weeks = 1000*8 = 8000
Total Inventory = Sum of no. of inventory units in the following buffers: =SUM(Customer, Receiving, Status 24, Status 40, Status 41 , Status 42 , Status 20) = 14405
Therefore, Utilization = 8000/14405 = .55 or 55 %
Solution 3
Av. time spent by a unit in each buffer can be found in 3rd row of Table 1 and is calculated by using the following formula:
Av. flow time = Inventory/Throughput
| BUFFER | Inventory | Throughput | Av. Time (WEEKS) |
| Customer | 8000 | 1000 | 8000/1000= 8 |
| Receiving | 500 | 1000 | 500/1000= .5 |
| Status 24 | 1500 | 700 | 1500/700= 2.14 |
| Status 40 | 1000 | 405 | 1000/405= 2.46 |
| Stored Orders | 500 | 405 | 500/405= 1.23 |
| Orders at Suppliers | 405 | 405 | 405/405= 1 |
| Status 41 | 905 | 405 | 905/405= 2.23 |
| Status 42 | 500 | 405 | 500/405= 1.23 |
| Status 20 | 2000 | 1000 | 2000/1000= 2 |
Solution 4
Profit = Revenue- variable Cost – Depreciation
Revenue = No. of units * Av. revenue per unit = 8000*30 = 240000
Variable cost = Shipping and Return cost + Av. Material cost when repairing (Status 40) + Av material cost per unit to convert it from Status 24 to Status 20
Shipping and return Cost = 2 *25 *1000= 50000
Av. Material Cost when repairing = No of units for tech test (Status 40)*Av unit cost when repairing
= 405*150= 60750
Av material cost per unit to convert it from status 24 to status 20 = 4*700*.85= $ 2380
Total variable cost = 50000+60750+2380= $ 113130
St. Line depreciation per week = Total no. of units * price per unit / total no. of weeks
= 14405*1000/156= 92340
Therefore, Profit= 240000- 113130- 92340= $ 34,530
Contribution margin = Rev – variable cost = 24000-113130= 126870
Comparing to Depreciation the Contribution margin is more. CM > DM
Solution 5
To solve this problem we can compare the profits generated after company had launched sales drive to the profit generated if the company didn’t opt to use sales drive. Therefore, there will be two cases: Case 1: Demand increases to 1400 units per week and time flow is same (with Sales Drive)
TABLE 2
| Customer | Receiving | Status 24 | Status 40 | Stored Orders | Orders at Suppliers | Status 41 | Status 42 | Status 20 | |
| Throughput(Units/Week) | 1400 | 1400 | 980 | 1400*.30+ .15*980= 567 | 567 | 567 | 567 | 567 | 1400 |
| Inventory(Units) | 8000 | 1400*.5 =700 | 980*2.14 =2097 | 567*2.46 =1400 | 567*1.23 =697 | 567*1 =567 | 567*2.23 =1264 | 567*1.23 =697 | 1400*2 =2800 |
| Flow Time(Weeks) | 8000/1400 = 5.71 | 0.5 | 2.14 | 2.46 | 1.23 | 1 | 2.23 | 1.23 | 2 |
It is given those 600 units out of 1400 were rented for 8 weeks and remaining 800 units for 4 weeks.
Revenue = 600*8*30 + 800* 4* 35 = 256000
Variable cost = 2*25*1400 + 4*980*.85 + 150*567= 158382
St. Line Dep. = 16958*1000/156= 108705
Profit = 256000-158382-108705= $-11087 (LOSS)
Case 2: Demand is 600 units per week and flow time is same (without sales drive)
TABLE 3
| Customer | Receiving | Status 24 | Status 40 | Stored Orders | Orders at Suppliers | Status 41 | Status 42 | Status 20 | |
| Throughput(Units/Week) | 600 | 600 | 600*.70 =420 | 600*.30+420*.15 =243 | 243 | 243 | 243 | 243 | 600 |
| Inventory(Units) | 600*8 =4800 | 600*.5 =300 | 420*2.14 =898 | 243*2.46 =597 | 243*1.23 =298 | 243*1 =243 | 243*2.23 =541 | 243*1.23 =298 | 600*2 =1200 |
| Flow Time(Weeks) | 8 | 0.5 | 2.14 | 2.46 | 1.23 | 1 | 2.23 | 1.23 | 2 |
Revenue = 600*8*30= 144000
Variable cost = 2*25*600 + 4*420*.85+ 150*243 = 67878
St. Line Depreciation= 8634*1000/156= 55346
Profit = 144000-67878-55346= $ 20782 (GAIN)
Above results shows that the sales drive was not very effective.
Suggested Plan? (Capturing market for longer period)
Solution 6
In order to solve this problem we will first find computers rented per week.
Computers rented per week:
Option A: .6*1500+.3*1000+.1*600= 900+300+60= 1260
Option B: .4*1500+.4*1000+.2*600= 600+400+120= 1120
Option C: .2*1500+.5*1000+.25*600= 300+500+150= 950
CASE 1 Inventory size is same
| CASE 1 | Buffer Sizes are same | ||||||||
| OPTION A | Customer | Receiving | Status 24 | Status 40 | Stored Orders | Orders at Suppliers | Status 41 | Status 42 | Status 20 |
| Throughput(Units/Week) | 1260 | 1260 | 882 | 510 | 510 | 510 | 510 | 510 | 1260 |
| Inventory(Units) | 8000 | 500 | 1500 | 1000 | 500 | 405 | 905 | 500 | 2520 |
| Flow Time(Weeks) | 6.35 | 0.4 | 1.7 | 1.96 | 0.98 | 0.79 | 1.77 | 0.98 | 2 |
| OPTION B | Customer | Receiving | Status 24 | Status 40 | Stored Orders | Orders at Suppliers | Status 41 | Status 42 | Status 20 |
| Throughput(Units/Week) | 1120 | 1120 | 784 | 454 | 454 | 454 | 454 | 454 | 1120 |
| Inventory(Units) | 8000 | 500 | 1500 | 1000 | 500 | 405 | 905 | 500 | 2240 |
| Flow Time(Weeks) | 7.14 | 0.45 | 1.91 | 2.2 | 1.1 | 0.89 | 2 | 1.1 | 2 |
| OPTION C | Customer | Receiving | Status 24 | Status 40 | Stored Orders | Orders at Suppliers | Status 41 | Status 42 | Status 20 |
| Throughput(Units/Week) | 950 | 950 | 665 | 385 | 385 | 385 | 385 | 385 | 950 |
| Inventory(Units) | 8000 | 500 | 1500 | 1000 | 500 | 405 | 905 | 500 | 1900 |
| Flow Time(Weeks) | 8.42 | 0.53 | 2.26 | 2.6 | 1.3 | 1.05 | 2.35 | 1.3 | 2 |
Total number of inventory units:
Option A: 8000+500+1500+1000+905+500+2520=14925
Option B: 8000+500+1500+1000+905+500+2240=14645
Option C: 8000+500+1500+1000+905+500+1900=14305
To meet the requirements, the company will have to buy extra 520 units and 240 units for option A and option B respectively and sell 100 units for option C.
Note: If a unit is sold after 1 year, its book value will be 1000- (1000/36)*12 = 666.667. Therefore, selling a unit after 1 year will give us $ 666.667
Table below compares the profits for all the options:
| Case 1 | Revenue | Variable cost | St. line Dep. | Profit | Changed Revenue after Buy/sell of computer | Changed profit= Changed rev-var. cost-dep. |
| Option A | (900*40+300*30 +60*25)*52wk =2418000 | 141998.8 | 95673.07692 | 2180328 | 2418000-1000*520 =1898000 | 1660328 |
| Option B | (600*40+400*30 +120*25)*52 =2028000 | 126765.6 | 93878.20513 | 1807356 | 202800-1000*240 =1788000 | 1567356 |
| Option C | (300*40+500*30 +150*25)*52 =1599000 | 107511 | 91698.71795 | 1399790 | 1599000+666.66*100 =1665660 | 1466450 |
Therefore, Option A is the best keeping inventory constant.
CASE 2 Flow time is same
| CASE 2 | Time spent in all buffers is the same as it was in last year | ||||||||
| OPTION A | Customer | Receiving | Status 24 | Status 40 | Stored Orders | Orders at Suppliers | Status 41 | Status 42 | Status 20 |
| Throughput(Units/Week) | 1260 | 1260 | 882 | 510 | 510 | 510 | 510 | 510 | 1260 |
| Inventory(Units) | 10080 | 630 | 1887 | 1260 | 627 | 510 | 1137 | 627 | 2520 |
| Flow Time(Weeks) | 8 | 0.5 | 2.14 | 2.47 | 1.23 | 1 | 2.23 | 1.23 | 2 |
| OPTION B | Customer | Receiving | Status 24 | Status 40 | Stored Orders | Orders at Suppliers | Status 41 | Status 42 | Status 20 |
| Throughput(Units/Week) | 1120 | 1120 | 784 | 454 | 454 | 454 | 454 | 454 | 1120 |
| Inventory(Units) | 8960 | 560 | 1677 | 1120 | 557 | 453 | 1011 | 557 | 2240 |
| Flow Time(Weeks) | 8 | 0.5 | 2.14 | 2.47 | 1.23 | 1 | 2.23 | 1.23 | 2 |
| OPTION C | Customer | Receiving | Status 24 | Status 40 | Stored Orders | Orders at Suppliers | Status 41 | Status 42 | Status 20 |
| Throughput(Units/Week) | 950 | 950 | 665 | 385 | 385 | 385 | 385 | 385 | 950 |
| Inventory(Units) | 7600 | 475 | 1423 | 950 | 473 | 385 | 857 | 473 | 1900 |
| Flow Time(Weeks) | 8 | 0.5 | 2.14 | 2.47 | 1.23 | 1 | 2.23 | 1.23 | 2 |
Total number of units:
Option A: 10080+630+1887+1260+1137+627+2520= 18141
Option B: 8960+560+1677+1120+1011+557+2240= 16125
Option C: 7600+475+1423+950+857+473+1900= 13678
To meet the requirements, the company will have to buy extra 3738 units and 1732 units for option A and option B respectively and sell 725 units for option C.
Table below compares the profit for all the options:
| Case 1 | Revenue | Variable cost | St. line Dep. | Profit | Changed Revenue after Buy/sell of computer | Changed profit |
| Option A | (900*40+300*30 +60*25)*52 =2418000 | 141998.8 | 116288.4615 | 2159713 | 2418000- 3738*1000 = -1320000 | -1578287 |
| Option B | (600*40+400*30 +120*25)*52 =2028000 | 126765.6 | 103365.3846 | 1797869 | 2028000-1732*1000 =296000 | 65869.02 |
| Option C | (300*40+500*30 +150*25)*52 =1599000 | 107511 | 87679.48718 | 1403810 | 1599000+725*666.66 =2082285 | 1887095 |
Therefore, Option C is the best keeping flow time constant.
