CRU Computer Rental Case Solutions

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 3^rd 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.