CRU Computer Rental

1. What was the utilization achieved by CRU in 1996?

Utilization = Inventory on rent / Inventory owned
Inventory on rent = 1,000 units per week x 8 weeks = 8,000
Inventory owned = 8,000 + 500 + 1,500 + 1,000 + 905 + 500 + 2,000 = 14,405
Utilization = 55% (8,000 / 14,405)

Customer Receiving Status 24 Status 40 Status 41 Parts (order forms in Que) Supplier (waiting for parts) Status 42 Status 20
Throughput (units/week) 1000 1000 700 405 405 405 405 405 1000 (1000 x 70%) [(1000 x 30%) +(700 x 15%)] [(700 x 85%) + 405] Inventory (units) 8000 500 1500 1000 905 500 405 500 2000 (8 weeks x 1000 units) (500 + 405) I = RxT (405 x 1 week) Flow Time (weeks) 8 0.5 2.1429 2.4691 2.2346 1.2346 1 1.2346 2 (8000/1000) (500/1000) (1500/700) (1000/405) (905/405) (500/405) (500/405) (2000/1000)

Calculate the average weekly contribution margin (revenues - variable costs) to CRU in 1996. Ignore labor and facility costs in this calculation. We assume that they are fixed. How does the contribution margin compare with the weekly depreciation?

• Number of units on rent = 8,000
• Total number of units = 14,405
• Utilization = 0.56 (56%)
• Revenue = 8,000 x 30 = $240,000/wk
• Variable Cost = 25 x 1,000 (R) + 25 x 1,000 (S) + 4x700x.85 + 150 x 405 = $113,130/wk
• Contribution Margin = $126,870/wk
• Depreciation = 14,405 x ($1000/156wks) = $92,340/wk
• CM- Depreciation = $126,870-$92,340 = $34,530,

Calculate the average weekly contribution margin (revenues - variable costs) to CRU in 1996. Ignore labor and facility costs in this calculation. We assume that they are fixed. How does the contribution margin compare with the weekly depreciation?

• Number of units on rent = 8,000
• Total number of units = 14,405
• Utilization = 0.56 (56%)
• Revenue = 8,000 x 30 = $240,000/wk
• Variable Cost = 25 x 1,000 (R) + 25 x 1,000 (S) + 4x700x.85 + 150 x 405 = $113,130/wk
• Contribution