Quiz 2: The Process View of the Organization

Business

(Dell) What percentage of cost of a Dell computer reflects inventory costs Assume Dell's yearly inventory cost is 40 percent to account for the cost of capital for financing the inventory, the warehouse space, and the cost of obsolescence. In other words, Dell incurs a cost of $40 for a $100 component that is in the company's inventory for one entire year. In 2001, Dell's 10-k reports showed that the company had $400 million in inventory and COGS of $26,442 million.

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Inventory Cost is the Cost associated with Ordering, Holding, Obsolescence Pilferage cost of the Inventory which is expressed as a percentage of the Inventory Valuation Consider the following data given in the question: Inventory in D's 10-k = $400 Cost of goods sold in D's 10-k = $26,442 Calculate the Inventory Turns for company D for the year 2001 by using the formula as follows: Calculate the cost of inventory per unit from the formula as follows: Therefore, the percentage of cost a D computer reflects inventory costs is

Q 2

(Airline) Consider the baggage check-in of a small airline. Check-in data indicate that from 9 a.m. to 10 a.m., 255 passengers checked in. Moreover, based on counting the number of passengers waiting in line, airport management found that the average number of passengers waiting for check-in was 35. How long did the average passenger have to wait in line

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Little's Law gives us a relationship between Average Inventory, Flow rate and the Flow Time. Arrival rate is the flow rate of the passengers. The average time the passenger spends in the system is the Flow Time. Consider the following data given in the question: Arrival rate or Flow rate = 255 Passenger per hour Average Inventory of passengers = 35 passengers Calculate the flow time, using Little's law, as follows: Therefore, the average passenger has to wait in line is

Q 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

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Inventory Turns is the inverse of the Flow time. Cost of the Goods Sold is the Cost of the production that company incurs in making the goods when it is sold. Inventory turns is the Number of times the inventory is sold or used in a year or a period of time. Consider the following data given in the question: Cost of Goods Sold as $1000 per unit for a Sales Cost of $2000 per unit. Note: Since $60,000,000 sales were realized in the last year, it can be concluded that the COGS for this value will be half of the sales. Calculate the Cost of Goods Sold from sales of $60,000,000 as $30,000,000 as follows: Therefore, the company turns its inventory in b) Calculate the cost of inventory per unit from the formula as follows: Therefore, for a product costing $1000 the Inventory Cost would be 16.66% of $1000 is

Q 4

(Apparel Retailing) A large catalog retailer of fashion apparel reported $100,000,000 in revenues over the last year. On average, over the same year, the company had $5,000,000 worth of inventory in their warehouses. Assume that units in inventory are valued based on cost of goods sold (COGS) and that the retailer has a 100 percent markup on all products. a. How many times each year does the retailer turn its inventory b. The company uses a 40 percent per year cost of inventory. That is, for the hypothetical case that one item of $100 COGS would sit exactly one year in inventory, the company charges itself a $40 inventory cost. What is the inventory cost for a $30 (COGS) item You may assume that inventory turns are independent of the price.

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Q 5

(LaVilla) LaVilla is a village in the Italian Alps. Given its enormous popularity among Swiss, German, Austrian, and Italian skiers, all of its beds are always booked in the winter season and there are, on average, 1,200 skiers in the village. On average, skiers stay in LaVilla for 10 days. a. How many new skiers are arriving-on average-in LaVilla every day b. A study done by the largest hotel in the village has shown that skiers spend on average $50 per person on the first day and $30 per person on each additional day in local restaurants. The study also forecasts that-due to increased hotel prices-the average length of stay for the 2003/2004 season will be reduced to five days. What will be the percentage change in revenues of local restaurants compared to last year (when skiers still stayed for 10 days) Assume that hotels continue to be fully booked!

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Q 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

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Q 7

(Industrial Baking Process) Strohrmann, a large-scale bakery in Pennsylvania, is laying out a new production process for their packaged bread, which they sell to several grocery chains. It takes 12 minutes to bake the bread. How large an oven is required so that the company is able to produce 4,000 units of bread per hour (measured in the number of units that can be baked simultaneously)

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Q 8

(Mt. Kinley Consulting) Mt. Kinley is a strategy consulting firm that divides its consultants into three classes: associates, managers, and partners. The firm has been stable in size for the last 20 years, ignoring growth opportunities in the 90s, but also not suffering from a need to downsize in the recession at the beginning of the 21st century. Specifically, there have been-and are expected to be-200 associates, 60 managers, and 20 partners. The work environment at Mt. Kinley is rather competitive. After four years of working as an associate, a consultant goes "either up or out"; that is, becomes a manager or is dismissed from the company. Similarly, after six years, a manager either becomes a partner or is dismissed. The company recruits MBAs as associate consultants; no hires are made at the manager or partner level. A partner stays with the company for another 10 years (a total of 20 years with the company). a. How many new MBA graduates does Mt. Kinley have to hire every year b. What are the odds that a new hire at Mt. Kinley will become partner (as opposed to being dismissed after 4 years or 10 years)

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Q 9

(Major U.S. Retailers) The following table shows financial data (year 2004) for Costco Wholesale and Walmart, two major U.S. retailers. Source: Compustat, WRDS. Assume that both companies have an average annual holding cost rate of 30 percent (i.e., it costs both retailers $3 to hold an item that they procured for $10 for one entire year). a. How many days, on average, does a product stay in Costco's inventory before it is sold Assume that stores are operated 365 days a year. b. How much lower is, on average, the inventory cost for Costco compared to Walmart of a household cleaner valued at $5 COGS Assume that the unit cost of the household cleaner is the same for both companies and that the price and the inventory turns of an item are independent.

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Q 10

(McDonald's) The following figures are taken from the 2003 financial statements of McDonald's and Wendy's. 1 Figures are in million dollars. a. In 2003, what were McDonald's inventory turns What were Wendy's inventory turns b. Suppose it costs both McDonald's and Wendy's $3 (COGS) per their value meal offerings, each sold at the same price of $4. Assume that the cost of inventory for both companies is 30 percent a year. Approximately how much does McDonald's save in inventory cost per value meal compared to that of Wendy's You may assume the inventory turns are independent of the price.

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