Cachon Problems And Solutions Chapter 2
Q 2.3 (Inventory Cost) A manufacturing company producing medical devices reported $60,000,000 in sales over the last year. At the end of the same year, the company had $20,000,000 worth of inventory of ready-to-ship devices.
A. Assuming that units in inventory are valued (based on COGS) at $1,000 per unit and are sold for $2,000 per unit, how fast does the company turn its inventory? The company uses a 25 percent per year cost of inventory. That is, for the hypothetical case that one unit of $1,000 would sit exactly one year in inventory, the company charges its operations division a $250 inventory cost.
B. What—in absolute terms—is the per unit inventory cost for a product that costs $1,000?
Sales
$60,000,000
(Flow)
Inventory
$20,000,000
Part A
Selling Price
$2,000
COGS per Unit
$1,000
(Flow Rate)
Units Sold
30,000
Total COGS
$30,000,000
(Flow Rate)
Flow Time (in years)=Inventory/Flow rate
0.666667
Inventory Turns
1.5
Part B
Per-Unit Inventory Cost Percentage
16.66667
Per-Unit Inventory Cost (in $)
166.6667
Applying Little’s Law to Financials allows us to see how efficient organization is.
In this particular problem we're concerned with the process so that the average inflow ( going into the process ) and the average outflow (coming out of the process). How long does it take for a dollar to get through the entire process how many dollars are sitting in inventory and how many dollars go through the entire process in a period of time
Q 2.6 (Highway) While driving home for the holidays, you can't seem to get Little's Law out of your mind. You note that your average speed of travel is about 60 miles per hour. Moreover, the traffic report from the WXPN traffic chopper states that there is an average of 24 cars going in your direction on a one-quarter mile part of the highway. What is the flow rate of the highway (going in your direction) in cars per hour?
Speed (in MPH)
60
Inventory
24
Flow time for 1/4-mile stretch of highway (in hrs)
A. Assuming that units in inventory are valued (based on COGS) at $1,000 per unit and are sold for $2,000 per unit, how fast does the company turn its inventory? The company uses a 25 percent per year cost of inventory. That is, for the hypothetical case that one unit of $1,000 would sit exactly one year in inventory, the company charges its operations division a $250 inventory cost.
B. What—in absolute terms—is the per unit inventory cost for a product that costs $1,000?
Sales
$60,000,000
(Flow)
Inventory
$20,000,000
Part A
Selling Price
$2,000
COGS per Unit
$1,000
(Flow Rate)
Units Sold
30,000
Total COGS
$30,000,000
(Flow Rate)
Flow Time (in years)=Inventory/Flow rate
0.666667
Inventory Turns
1.5
Part B
Per-Unit Inventory Cost Percentage
16.66667
Per-Unit Inventory Cost (in $)
166.6667
Applying Little’s Law to Financials allows us to see how efficient organization is.
In this particular problem we're concerned with the process so that the average inflow ( going into the process ) and the average outflow (coming out of the process). How long does it take for a dollar to get through the entire process how many dollars are sitting in inventory and how many dollars go through the entire process in a period of time
Q 2.6 (Highway) While driving home for the holidays, you can't seem to get Little's Law out of your mind. You note that your average speed of travel is about 60 miles per hour. Moreover, the traffic report from the WXPN traffic chopper states that there is an average of 24 cars going in your direction on a one-quarter mile part of the highway. What is the flow rate of the highway (going in your direction) in cars per hour?
Speed (in MPH)
60
Inventory
24
Flow time for 1/4-mile stretch of highway (in hrs)