Problem : Make or Buy Decision

Manufacturing 200000 tricycles

Manufacturing cost of tricycle tyre is $7 per tricycle as follow
Direct Materials - $400,000 ($2 / Tricycle tyres)
Direct Labours - $600,000 ($3 / Tricycle tyres)
Variable Cost - $100,000 ($.5 / Tricycle tyres)
Fixed Cost - $ 300,000 ($2.5 / Tricycle tyres)
$50000 is avoidable when buy rather than Make
Supplier has offered to produce necessary quantity of tricycle tires for $ 6 / tricycle
If company stop manufacturing tires and to produce tricycle horn as a new product, that will yield on additional $100,000 in n

Make or Buy Descision

Costs Make Buy Change in Income
Direct Materials
Direct Labours
Variable Cost
Fixed Cost
Purchase Cost
Opportunity Cost
Total Cost
dditional $100,000 in net income on annual basis.
Calculate MLT
An order for 100 Phones is processed on Company A & B. The setup of A is 30 minutes and a run time of 10 minutes per piece.
Wait time between the two operations is four hours. The move time between A and B is 10 minutes. Wait time after operation
queue at either workstation. Calculate the total MLT.
Phones to Produce 100
Operational Time
A B
Setup Time
Run Time

Operational Time
Move Time
Wait Time
Queue Time

Total MLT 34 hrs 45 mins

 n time of 10 minutes per piece. The setup time on B is 50 minutes, and the run time is 5 minutes per piece.
nutes. Wait time after operation B is four hours, and the move time into stores is 15 minutes. There is no
Calculating Seasonal Index

You want to forecast demand for week 3 of a certain item. The following table has the actual demand for the last two weeks.
given that a volume of 490 units is forecasted in week 3 (i.e. 70 units per day).
Overall forecast 490 70
Day Sun Mon Tue Wed Thur Fri Sat Total
Week1 54 60 72 85 98 86 40
Week2 52 64 76 87 96 88 44
Average / Per day
Seaseonal Index
Week 3
for the last two weeks. Prepare the forecast per day for the third week,
 Time Series Forecasting
X Y Forecast
Time Year Quarter Sales MA CMA St, It SI Deseason Tt
1 2010 1 4.8 0.93 5.15 5.25
2 2 4.1 0.84 4.89 5.39
3 3 6 5.35 5.48 1.10 1.09 5.49 5.54
4 4 6.5 5.60 5.74 1.13 1.14 5.69 5.69
5 2011 1 5.8 5.88 5.98 0.97 0.93 6.22 5.84
6 2 5.2 6.08 6.19 0.84 0.84 6.21 5.98
7 3 6.8 6.30 6.33 1.08 1.09 6.22 6.13
8 4 7.4 6.35 6.40 1.16 1.14 6.47 6.28
9 2012 1 6 6.45 6.54 0.92 0.93 6.44 6.42
10 2 5.6 6.63 6.68 0.84 0.84 6.68 6.57
11 3 7.5 6.73 6.76 1.11 1.09 6.86 6.72
12 4 7.8 6.80 6.84 1.14 1.14 6.82 6.87
13 2013 1 6.3 6.88 6.94 0.91 0.93 6.76 7.01
14 2 5.9 7.00 7.08 0.83 0.84 7.04 7.16
15 3 8 7.15 1.09 7.32 7.31
16 4 8.4 1.14 7.35 7.45
17 2014 1 0.93 7.60
18 2 0.84 7.75
19 3 1.09 7.90
20 4 1.14 8.04
 Accuracy Time Series
Ft MFE MAD MSE RMSE 10
4.89 9
4.52 8
6.06 7
6.50 6
5.44 5
5.01 4
6.70 3
7.18 2
5.99 1
5.50 0
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
7.35 2010 2011 2012 2013 2014
7.85
6.54 Quarter St,It a 5.09961
6.00 1 0.93 b 0.147139
7.99 2 0.84
8.52 3 1.09
7.09 4 1.14
6.49 SUMMARY OUTPUT
8.63
9.19 Regression Statistics
Multiple R 0.959579
R Square 0.920791
Adjusted R 0.915133
Standard E 0.212671
Observatio 16

ANOVA
df SS MS F
Regression 1 7.360933 7.360933 162.7479
Residual 14 0.633207 0.045229
Total 15 7.994139

Coefficients
Standard Error t Stat P-value
Intercept 5.09961 0.111526 45.72586 1.21E-16
X Variable 0.147139 0.011534 12.75727 4.248E-09
s

4 1 2 3 4 1 2 3 4
2013 2014

Significance F
4.248E-09

Lower 95%Upper 95%Lower 95.0%

Upper 95.0%
4.860411 5.338809 4.860411 5.338809
0.122401 0.171876 0.122401 0.171876
 Exponential alpha
Week Sales ES Manual
1 20
2 27
3 25
4 22
5 18
6 21
7 26
8 19
9?
 ABC analysis
S/no Item Number Unit Cost Annual Demand Total Cost Cummulative Cost % total Cost
1 107 20 18000 360000 360000 48.8%
2 101 5 48000 240000 600000 32.5%
3 109 9 5000 45000 645000 6.1%
4 105 7 4800 33600 678600 4.6%
5 102 11 2000 22000 700600 3.0%
6 106 16 1200 19200 719800 2.6%
7 104 8 800 6400 726200 0.9%
8 110 12 500 6000 732200 0.8%
9 103 15 300 4500 736700 0.6%
10 108 4 300 1200 737900 0.2%
737900
% Cummulative cost
48.8% A
81.3%
87.4% B
92.0%
94.9%
97.5% C
98.4%
99.2%
99.8%
100%
 Economic Order Quantity
Product A Product B
D - Demand 75000 10000
V - Product Value £20.00 £50.00
O - Order Cost £30.00 £80.00
C - Carrying Cost 22.50% 20%
Economic Order Quantity 1000 400
Order Cost £2,250.00 £2,000.00
Inventory Carrying Cost £2,250.00 £2,000.00
Total Cost £4,500.00 £4,000.00

ROP
No of orders 75 25
lead time to deliver in days 2 10
daily consumption 250 33
ROP in quantity 500 333
mic Order Quantity
Product C Product D Product E
20000 45000 100000
£8,000.00 £4.00 £200.00
£300.00 £40.00 £200.00
15% 22.50% 25%
100 2000 894
£60,000.00 £900.00 £22,360.68
£60,000.00 £900.00 £22,360.68
£120,000.00 £1,800.00 £44,721.36

ROP
200 23 112
1 2 2
67 150 333
67 300 667