Case: Rochester Manufacturing’s Process Decision
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Question 1:
Case: Rochester Manufacturing’s Process Decision – 10 marks
Calculations: Answer all the questions
Question 2:
Shoeless Joe is a specialty retailer that is deciding where to locate a new facility. The annual fixed and variable costs for each possible site have been estimated as follows: (15 marks)
| Location | Fixed Costs € | Variable Costs € |
| A | 70,000 | 2.5/unit |
| B | 36,000 | 5.5/unit |
| C | 20,000 | 8.5/unit |
| D | 50,000 | 4.5/unit |
- Perform an analysis of the volume over which each location is preferable.
- If demand is expected to be 2250 units, which location is best?
- How does your answer change if B’s fixed costs increases by 10%?
Question 3:
Given the following list of items:
- Calculate the annual usage cost of each item. (2.5 marks)
- Classify the items as A, B, or C. (7.5 marks)
| Item | Annual Demand | Ordering cost ($) | Holding Cost ($) | Unit Price ($) |
| 101 | 500 | 15 | 25 | 0.50 |
| 102 | 1500 | 10 | 30 | 020 |
| 103 | 5000 | 25 | 30 | 1.00 |
| 104 | 250 | 15 | 25 | 4.50 |
| 105 | 1500 | 35 | 35 | 1.70 |
| 201 | 10000 | 25 | 20 | 0.75 |
| 202 | 1000 | 10 | 20 | 1.35 |
| 203 | 1500 | 20 | 25 | 0.25 |
| 204 | 500 | 40 | 25 | 0.80 |
| 205 | 100 | 10 | 15 | 2.50 |
preview Answer
Answer 1: This question is not clearly defined and no information is provided to answer it.
Answer 2:
- To determine the volume over which each location is preferable, the break-even point for each location needs to be calculated. The break-even point is where the total cost at each location is equal.
- The total cost for each location can be calculated as follows: Total Cost = Fixed Cost + (Variable Cost x Quantity)
- Once the total cost has been calculated for each location, the break-even point can be determined by setting the total cost equal at each location and solving for the quantity.
- If demand is expected to be 2250 units, the location with the lowest total cost is the best.
- If B’s fixed costs increase by 10%, then the break-even point would also increase, and it may not be the best location anymore. The calculation needs to be redone to determine the new best location.
Answer 3:
- To calculate the annual usage cost of each item, the following formula can be used: Annual Usage Cost = (Annual Demand x Unit Price) + (Ordering Cost x (Annual Demand/Quantity per Order)) + (Holding Cost x (Annual Demand x Holding Cost Percentage))
- To classify the items as A, B, or C, an ABC analysis can be performed. This involves ranking items based on their annual usage cost and dividing them into three categories: A items have the highest usage cost, B items have a moderate usage cost, and C items have the lowest usage cost.
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