Question 1: 

Initially, assume that Phil wants to minimize his inventory requirements.

Assume that each order will be only for what is required for a single period. Using the
following forms, calculate the net requirements and planned order releases for the gear
boxes and input shafts. Assume that lot sizing is done using lot-for-lot (L4L)
Answer- Based on the engine assembly master schedule and the general product structure,
one gear box is required for every engine assembled. 

Engine assembly master schedule

Weeks PD 1 2 3 4 5 6 7 8 9 10 11 12

Quantity
  15 5 7 10   15 20 10        
produced

1
Weeks PD 1 2 3 4 5 6 7 8 9 10 12
1

1 1 1
Gross requirement   5 7   15 20   8 2 16
5 0 0

Scheduled receipt     5                    

Projected available
17 2 2                    
balance

1 1
Net requirements       5   15 20   8 2 16
0 0

Planned order 1 1
      5   15 20   8 2 16
receipts 0 0

Planned order 1
  5 10   20 10   8 2 16    
releases 5

Gear Box

Input Shaft P
Weeks 1 2 3 4 5 6 7 8 9 10 11 12
D
 4
Gross requirement   10 20   30 20   16 4 32    
0

Scheduled receipt     22                    

Projected available
40 30 32   2                
balance

3
Net requirements           20   16 4 32    
8

3
Planned order receipts           20   16 4 32    
8

1
Planned order releases     38 20   4 32          
6

Question 2: Phil would like to consider the costs that his accountants are currently
using for inventory carrying and setup for the gear boxes and input shafts. These costs
are as follows:
Part                             Cost
Gear box                     setup = $90 / order
                                    Inventory carrying cost = $2 / unit /week
Input shaft                  setup = $ 45/ order
                                    Inventory carrying cost = $ 1/ unit/ week
           Answer- Given the cost structure stipulated in question 1, the cost of the entire
schedule when the inventory is valued at the end of every week shall be;
Inventory = ending inventory x holding cost
    4 x 2 = $8
Setup Cost = total inventories x setup
   8 x 90 = $720
Gear Box cost = setup cost + inventory
Total   = $720 + $ 8 =$728
Inventory = total ending inventory x holding cost
     96 x 1 = $96
 Setup Cost = planned inventories x setup
   5 x 45 = $225
Input Shaft = setup cost + inventory
            Total   = $225 + $96 = $321
The total cost for the gear box and the input shaft = gear box cost + input shaft cost
Total Cost = $728 + $321 = $1,049
Question 3: Find a better schedule by reducing the number of orders and carrying some
inventory. What are the savings with this new schedule?
Answer- To derive a better and cost-effective method of production the Least total cost
method (LTC) will be used. The LTC is a dynamic sizing technique used lot sizing to
calculate the order quantity.

Engine Assembly Master schedule

Weeks PD 1 2 3 4 5 6 7 8 9 10 11 12

Quantity produced   15 5 7 10   15 20 10   8 2 16

Gear box requirements

Weeks PD 1 2 3 4 5 6 7 8 9 10 11 12

Gross requirement   15 5 7 10   15 20 10   8 2 16

Scheduled receipt     5               26    

Projected available balance   2 2 10     30 10     18 16  

Net requirements       5 10   45 20 10   8 2 16

Planned order releases   15 10   45   15   26 2      

 Input shaft requirements

Weeks PD 1 2 3 4 5 6 7 8 9 10 1

Gross requirement   30     90       52      

Scheduled receipt     22                  

Projected available balance   10 32 32                

Net requirements         58       52      

Planned order releases   58       52            

Based on the new figures;

Inventory = ending inventory x holding cost
    88x 2 = $176
Setup Cost = total inventories x setup
   3 x 90 = $270
Gear Box cost= setup cost + inventory
Total   = $270 + $ 176 =$446
Inventory = total ending inventory x holding cost
     74 x 1 = $74
Setup Cost= planned inventories x setup
   2 x 45 = $90
Input Shaft = setup cost + inventory
            Total = $90 + $74 = $164
The total cost for the gear box and the input shaft = gear box cost + input shaft cost
Total Cost = $446 + $164 = $610
Total savings using the Least total cost method over L4L is $439.