Question

Make versus Buy The Liquid Chemical Company manufactures and sells a range of high-grade products. Many of these products require careful packaging. The company has a special patented lining made that it uses in specially designed packing containers. The lining uses a special material known as GHL. The firm operates a department that maintains and repairs its packing containers to keep them in good condition and that builds new ones to replace units that are damaged beyond repair. Mr. Walsh, the general manager, has for some time suspected that the firm might save money and get equally good service by buying its containers from an outside source. After careful inquiries, he has approached a firm specializing in container production, Packages, Inc., and asked for a quotation. At the same time, he asked Mr. Dyer, his chief accountant, to let him have an up-to-date statement of the costs of operating the container department. Within a few days, the quotation from Packages, Inc., arrived. The firm proposed to supply all the new containers required - at that time, running at the rate of 3,000 per year-for $$\$ 1,250,000$$ a year, the contract to run for a guaranteed term of five years and thereafter renewable from year to year. If the number of containers required increased, the contract price would increase proportionally. Packages, Inc., also proposed to perform all maintenance and repair work on existing packaging containers for a sum of $$\$ 375,000$$ a year, on the same contract terms. Mr. Walsh compared these figures with Mr. Dyer's cost figures, which covered a year's operations of the container department of the Liquid Chemical Company and appear in Exhibit 4.13. Walsh concluded that he should immediately close the packing container department and sign the contracts offered by Packages, Inc. He felt an obligation, however, to give the manager of the department, Mr. Duffy, an opportunity to question his decision before acting. Walsh told Duffy that Duffy's own position was not in jeopardy. Even if Walsh closed his department, another managerial position was becoming vacant to which Duffy could move without any loss of pay or prospects. The manager Duffy would replace also earned $$\$ 80,000$$ per year. Moreover, Walsh knew that he was paying $$\$ 85,000$$ per year in rent for a warehouse a couple of miles away that was used for other corporate purposes. If he closed Duffy's department, he'd have all the warehouse space he needed without renting additional space. Duffy gave Walsh a number of considerations to think about before he closed the department: "For instance," he said, "what will you do with the machinery? It cost $$\$ 1,200,000$$ four years ago, but you'd be lucky if you'd get $$\$ 200,000$$ for it now, even though it's good for another five years. And then there's the stock of GHL (a special chemical) we bought a year ago. That cost us $$\$ 1,000,000$$, and at the rate we're using it now, it'll last another four years. We used up only about one-fifth of it last year. Dyer's figure of $$\$ 700,000$$ for materials includes $$\$ 200,000$$ for GHL. But it'll be tricky stuff to handle if we don't use it up. We bought it for $$\$ 5,000$$ a ton, and you couldn't buy it today for less than $$\$ 6,000$$. But you'd get only $$\$ 4,000$$ a ton if you sold it, after you'd covered all the handling expenses." (TABLE CANT COPY) Walsh also worried about the workers if he closed the department. "I don't think we can find room for any of them elsewhere in the firm. However, I believe Packages would take all but Hines and Walters. Hines and Walters have been with us since they left school 40 years ago. I'd feel bound to give them a supplemental pension - $$\$ 15,000$$ a year each for five years, say. Also, I'd figure a total severance pay of $$\$ 20,000$$ for the other employees, paid in a lump sum at the time we sign the contract with Packages." Duffy showed some relief at this. "But I still don't like Dyer's figures," he said. "What about this $$\$ 225,000$$ for general administrative overheads? You surely don't expect to sack anyone in the general office if I'm closed, do you?" Walsh agreed. "Well, I think we've thrashed this out pretty well," said Walsh, "but I've been turning over in my mind the possibility of perhaps keeping on the maintenance work ourselves. What are your views on that, Duffy?" "I don't know," said Duffy, "but it's worth looking into. We wouldn't need any machinery for that, and I could hand the supervision over to the current supervisor who earns $$\$ 50,000$$ per year. You'd need only about one-fifth of the workers, but you could keep on the oldest and save the pension costs. You'd still have the $$\$ 20,000$$ severance pay, I suppose. You wouldn't save any space, so I suppose the rent would be the same. I don't think the other expenses would be more than $$\$ 65,000$$ a year." "What about materials?" asked Walsh. "We use 10 percent of the total on maintenance," Duffy replied. "Well, I've told Packages that I'd give them my decision within a week," said Walsh. "I'll let you know what I decide to do before I write to them." Assume the company has a cost of capital of 10 percent per year and uses an income tax rate of 40 percent for decisions such as these. Liquid Chemical would pay taxes on any gain or loss on the sale of machinery or the GHL at 40 percent. (Depreciation for book and tax purposes is straight-line over eight years.) The tax basis of the machinery is $$\$ 600,000$$. Also assume the company had a five-year time horizon for this project and that any GHL needed for Year 5 would be purchased during Year 5 . Required a. What are the four alternatives available to Liquid Chemical? b. What action should Walsh take? Support your conclusion with a net present value analysis of all the mutually exclusive alternatives. Be sure to consider factors not explicitly discussed in the case that you think should have a bearing on Walsh's decision. c. What, if any, additional information do you think Walsh needs to make a sound decision? Why? 

   Make versus Buy
The Liquid Chemical Company manufactures and sells a range of high-grade products. Many of these products require careful packaging. The company has a special patented lining made that it uses in specially designed packing containers. The lining uses a special material known as GHL. The firm operates a department that maintains and repairs its packing containers to keep them in good condition and that builds new ones to replace units that are damaged beyond repair.

Mr. Walsh, the general manager, has for some time suspected that the firm might save money and get equally good service by buying its containers from an outside source. After careful inquiries, he has approached a firm specializing in container production, Packages, Inc., and asked for a quotation. At the same time, he asked Mr. Dyer, his chief accountant, to let him have an up-to-date statement of the costs of operating the container department.

Within a few days, the quotation from Packages, Inc., arrived. The firm proposed to supply all the new containers required - at that time, running at the rate of 3,000 per year-for $$\$ 1,250,000$$ a year, the contract to run for a guaranteed term of five years and thereafter renewable from year to year. If the number of containers required increased, the contract price would increase proportionally. Packages, Inc., also proposed to perform all maintenance and repair work on existing packaging containers for a sum of $$\$ 375,000$$ a year, on the same contract terms.

Mr. Walsh compared these figures with Mr. Dyer's cost figures, which covered a year's operations of the container department of the Liquid Chemical Company and appear in Exhibit 4.13.

Walsh concluded that he should immediately close the packing container department and sign the contracts offered by Packages, Inc. He felt an obligation, however, to give the manager of the department, Mr. Duffy, an opportunity to question his decision before acting. Walsh told Duffy that Duffy's own position was not in jeopardy. Even if Walsh closed his department, another managerial position was becoming vacant to which Duffy could move without any loss of pay or prospects. The manager Duffy would replace also earned $$\$ 80,000$$ per year. Moreover, Walsh knew that he was paying $$\$ 85,000$$ per year in rent for a warehouse a couple of miles away that was used for other corporate purposes. If he closed Duffy's department, he'd have all the warehouse space he needed without renting additional space.

Duffy gave Walsh a number of considerations to think about before he closed the department: "For instance," he said, "what will you do with the machinery? It cost $$\$ 1,200,000$$ four years ago, but you'd be lucky if you'd get $$\$ 200,000$$ for it now, even though it's good for another five years. And then there's the stock of GHL (a special chemical) we bought a year ago. That cost us $$\$ 1,000,000$$, and at the rate we're using it now, it'll last another four years. We used up only about one-fifth of it last year. Dyer's figure of $$\$ 700,000$$ for materials includes $$\$ 200,000$$ for GHL. But it'll be tricky stuff to handle if we don't use it up. We bought it for $$\$ 5,000$$ a ton, and you couldn't buy it today for less than $$\$ 6,000$$. But you'd get only $$\$ 4,000$$ a ton if you sold it, after you'd covered all the handling expenses."
(TABLE CANT COPY)
Walsh also worried about the workers if he closed the department. "I don't think we can find room for any of them elsewhere in the firm. However, I believe Packages would take all but Hines and Walters. Hines and Walters have been with us since they left school 40 years ago. I'd feel bound to give them a supplemental pension - $$\$ 15,000$$ a year each for five years, say. Also, I'd figure a total severance pay of $$\$ 20,000$$ for the other employees, paid in a lump sum at the time we sign the contract with Packages."

Duffy showed some relief at this. "But I still don't like Dyer's figures," he said. "What about this $$\$ 225,000$$ for general administrative overheads? You surely don't expect to sack anyone in the general office if I'm closed, do you?" Walsh agreed.
"Well, I think we've thrashed this out pretty well," said Walsh, "but I've been turning over in my mind the possibility of perhaps keeping on the maintenance work ourselves. What are your views on that, Duffy?"
"I don't know," said Duffy, "but it's worth looking into. We wouldn't need any machinery for that, and I could hand the supervision over to the current supervisor who earns $$\$ 50,000$$ per year. You'd need only about one-fifth of the workers, but you could keep on the oldest and save the pension costs. You'd still have the $$\$ 20,000$$ severance pay, I suppose. You wouldn't save any space, so I suppose the rent would be the same. I don't think the other expenses would be more than $$\$ 65,000$$ a year."
"What about materials?" asked Walsh.
"We use 10 percent of the total on maintenance," Duffy replied.
"Well, I've told Packages that I'd give them my decision within a week," said Walsh. "I'll let you know what I decide to do before I write to them."

Assume the company has a cost of capital of 10 percent per year and uses an income tax rate of 40 percent for decisions such as these. Liquid Chemical would pay taxes on any gain or loss on the sale of machinery or the GHL at 40 percent. (Depreciation for book and tax purposes is straight-line over eight years.) The tax basis of the machinery is $$\$ 600,000$$. Also assume the company had a five-year time horizon for this project and that any GHL needed for Year 5 would be purchased during Year 5 .
Required
a. What are the four alternatives available to Liquid Chemical?
b. What action should Walsh take? Support your conclusion with a net present value analysis of all the mutually exclusive alternatives. Be sure to consider factors not explicitly discussed in the case that you think should have a bearing on Walsh's decision.
c. What, if any, additional information do you think Walsh needs to make a sound decision? Why?
Show moreā€¦
Fundamentals of Cost Accounting
Fundamentals of Cost Accounting
William Lanen,ā€¦ 4th Edition
Chapter 4, Problem 62 ā†“

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Continue operating the container department as is. b. Outsource both the production and maintenance of containers to Packages, Inc. c. Outsource only the production of containers to Packages, Inc., while maintaining the maintenance operations in-house. d.  Show more…

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Make versus Buy The Liquid Chemical Company manufactures and sells a range of high-grade products. Many of these products require careful packaging. The company has a special patented lining made that it uses in specially designed packing containers. The lining uses a special material known as GHL. The firm operates a department that maintains and repairs its packing containers to keep them in good condition and that builds new ones to replace units that are damaged beyond repair. Mr. Walsh, the general manager, has for some time suspected that the firm might save money and get equally good service by buying its containers from an outside source. After careful inquiries, he has approached a firm specializing in container production, Packages, Inc., and asked for a quotation. At the same time, he asked Mr. Dyer, his chief accountant, to let him have an up-to-date statement of the costs of operating the container department. Within a few days, the quotation from Packages, Inc., arrived. The firm proposed to supply all the new containers required - at that time, running at the rate of 3,000 per year-for $$\$ 1,250,000$$ a year, the contract to run for a guaranteed term of five years and thereafter renewable from year to year. If the number of containers required increased, the contract price would increase proportionally. Packages, Inc., also proposed to perform all maintenance and repair work on existing packaging containers for a sum of $$\$ 375,000$$ a year, on the same contract terms. Mr. Walsh compared these figures with Mr. Dyer's cost figures, which covered a year's operations of the container department of the Liquid Chemical Company and appear in Exhibit 4.13. Walsh concluded that he should immediately close the packing container department and sign the contracts offered by Packages, Inc. He felt an obligation, however, to give the manager of the department, Mr. Duffy, an opportunity to question his decision before acting. Walsh told Duffy that Duffy's own position was not in jeopardy. Even if Walsh closed his department, another managerial position was becoming vacant to which Duffy could move without any loss of pay or prospects. The manager Duffy would replace also earned $$\$ 80,000$$ per year. Moreover, Walsh knew that he was paying $$\$ 85,000$$ per year in rent for a warehouse a couple of miles away that was used for other corporate purposes. If he closed Duffy's department, he'd have all the warehouse space he needed without renting additional space. Duffy gave Walsh a number of considerations to think about before he closed the department: "For instance," he said, "what will you do with the machinery? It cost $$\$ 1,200,000$$ four years ago, but you'd be lucky if you'd get $$\$ 200,000$$ for it now, even though it's good for another five years. And then there's the stock of GHL (a special chemical) we bought a year ago. That cost us $$\$ 1,000,000$$, and at the rate we're using it now, it'll last another four years. We used up only about one-fifth of it last year. Dyer's figure of $$\$ 700,000$$ for materials includes $$\$ 200,000$$ for GHL. But it'll be tricky stuff to handle if we don't use it up. We bought it for $$\$ 5,000$$ a ton, and you couldn't buy it today for less than $$\$ 6,000$$. But you'd get only $$\$ 4,000$$ a ton if you sold it, after you'd covered all the handling expenses." (TABLE CANT COPY) Walsh also worried about the workers if he closed the department. "I don't think we can find room for any of them elsewhere in the firm. However, I believe Packages would take all but Hines and Walters. Hines and Walters have been with us since they left school 40 years ago. I'd feel bound to give them a supplemental pension - $$\$ 15,000$$ a year each for five years, say. Also, I'd figure a total severance pay of $$\$ 20,000$$ for the other employees, paid in a lump sum at the time we sign the contract with Packages." Duffy showed some relief at this. "But I still don't like Dyer's figures," he said. "What about this $$\$ 225,000$$ for general administrative overheads? You surely don't expect to sack anyone in the general office if I'm closed, do you?" Walsh agreed. "Well, I think we've thrashed this out pretty well," said Walsh, "but I've been turning over in my mind the possibility of perhaps keeping on the maintenance work ourselves. What are your views on that, Duffy?" "I don't know," said Duffy, "but it's worth looking into. We wouldn't need any machinery for that, and I could hand the supervision over to the current supervisor who earns $$\$ 50,000$$ per year. You'd need only about one-fifth of the workers, but you could keep on the oldest and save the pension costs. You'd still have the $$\$ 20,000$$ severance pay, I suppose. You wouldn't save any space, so I suppose the rent would be the same. I don't think the other expenses would be more than $$\$ 65,000$$ a year." "What about materials?" asked Walsh. "We use 10 percent of the total on maintenance," Duffy replied. "Well, I've told Packages that I'd give them my decision within a week," said Walsh. "I'll let you know what I decide to do before I write to them." Assume the company has a cost of capital of 10 percent per year and uses an income tax rate of 40 percent for decisions such as these. Liquid Chemical would pay taxes on any gain or loss on the sale of machinery or the GHL at 40 percent. (Depreciation for book and tax purposes is straight-line over eight years.) The tax basis of the machinery is $$\$ 600,000$$. Also assume the company had a five-year time horizon for this project and that any GHL needed for Year 5 would be purchased during Year 5 . Required a. What are the four alternatives available to Liquid Chemical? b. What action should Walsh take? Support your conclusion with a net present value analysis of all the mutually exclusive alternatives. Be sure to consider factors not explicitly discussed in the case that you think should have a bearing on Walsh's decision. c. What, if any, additional information do you think Walsh needs to make a sound decision? Why?
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Key Concepts

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Qualitative and Strategic Considerations
Beyond the numerical analysis, factors such as employee impact, organizational flexibility, service quality, and strategic alignment influence management decisions. While quantitative methods like NPV provide a clear fiscal picture, qualitative aspectsā€”including employee morale, future capabilities, and long-term supplier relationshipsā€”can be equally important in determining the best overall course of action.
Make versus Buy Decision
This concept involves comparing the costs and benefits of producing a product or service internally (make) against purchasing it from an external supplier (buy). The analysis includes both quantitative factorsā€”such as production costs, fixed costs, variable costs, and potential economies of scaleā€”and qualitative considerations like quality control, flexibility, and strategic focus. It is central to operations and strategic management decisions within a firm.
Net Present Value (NPV) Analysis
NPV analysis is a capital budgeting technique that discounts future cash flows to their present value using a cost of capital. It provides a standardized method to compare the financial merits of different projects or alternatives over time, ensuring that the decision-maker considers the time value of money. In make versus buy evaluations, NPV analysis helps determine which alternative generates the maximum value over a specified time horizon.
Opportunity Cost and Sunk Cost Consideration
When evaluating alternatives, decision-makers must focus on incremental or differential costs rather than sunk costs, which are past expenditures that cannot be recovered. Opportunity cost represents the benefits foregone by choosing one alternative over another. This differentiation ensures that only the costs directly affected by the decisionā€”both explicit and implicitā€”are considered, avoiding biases from unrecoverable expenses.
Tax Implications in Investment Decisions
Tax considerations play a crucial role in capital budgeting and operational decisions. These can include evaluating taxes on gains or losses from the sale of assets, the impact of depreciation methods on taxable income, and the eventual tax liabilities associated with different financing or operational alternatives. Incorporating tax effects ensures that the net cash flows reflect the true economic benefit or cost from each decision.
Depreciation and Asset Valuation
Understanding depreciation is important for allocating the cost of tangible assets over their useful lives and determining their book and tax values. Methods like straight-line depreciation affect both the financial statements and tax liabilities. In make versus buy decisions, considerations of the residual value or salvage value of depreciated assets influence whether retaining or disposing of existing assets makes financial sense.
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(Changes in profit) No. of new kegs purchased: 0: No increase ($0), Up less than 10% ($0), Up at least 10% ($0) 4000: No increase (-$16,000), Up less than 10% ($16,000), Up at least 10% ($16,000) 8000: No increase (-$32,000), Up less than 10% ($0), Up at least 10% ($32,000) Sally Martin, from the Marketing department, was quick to point out that these calculations took no account of the customer goodwill which would be lost if the Company was unable to meet demand because of a shortage of available kegs. "In the long run," she said,"we could see customers asking us to remove the pumping equipment we have installed in their bars and that could prove costly!" "I still think it might be worth delaying our decision until we get the August sales forecast," said Skills,"even if that does mean taking a risk that the kegs will not be available." "How reliable are these one month ahead forecasts?" asked Jewel. "They're not bad. If you can give me a couple of days I'll let you have a summary of their recent performance." After some further discussion, it was agreed to reconvene the committee at the end of the week when Skills' figures could be looked at. A decision would then be made on whether to go ahead and order a specific number of kegs immediately or to delay the purchasing decision until the sales forecast was available. Question 1 Use the information from the case to create a conditional decision tree for the Forecast indicates > increase scenario. Generate all 1) Prior probabilities 2) New Information 3) Joint probabilities 4) Posterior probabilities A1 = A2 = A3 = A4 = A5 = A6 = A7 = A8 = A9= A10= A11 = A12 = A13 = Question 2 Use the information from the case to create a conditional decision tree for the Forecast indicates < increase scenario. Generate all 1) Prior probabilities 2) New Information 3) Joint probabilities 4) Posterior probabilities B1 = B2 = B3 = B4 = B5 = B6 = B7 = B8 = B9= B10= B11 = B12 = B13 = Question 3 Use the information from the case to create a conditional decision tree for the Forecast indicates no increase scenario. Generate all 1) Prior probabilities 2) New Information 3) Joint probabilities 4) Posterior probabilities C1 = C2 = C3 = C4 = C5 = C6 = C7 = C8 = C9= C10= C11 = C12 = C13 = Question 4 Use the information from the case to devise values for all terminal nodes for the decision tree. Report values as net profits in thousands of dollars (for example $13,000 would be entered as 13) For each triple of branches on the far right of the tree, organize your responses based on Top: Greater than 10% increase Middle: Less than 10% increase Bottom: No Increase T1 = T2 = T3 = T4 = T5 = T6 = T7 = T8 = T9= T10= T11 = T12 = T13 = T14 = T15= T16 = T17 = T18 = T19 = T20 = T21 = T22 = T23 = T24 = T25 = T26 = T27 = T28 = T29 = Question 5 Use the information from the case to devise values for all probabilities for the decision tree. Note that these probabilities will be based on the responses derived in the previous BAYES analysis question. P1 = P2 = P3 = P4 = P5 = P6 = P7 = P8 = P9= P10= P11 = P12 = P13 = P14 = P15= P16 = P17 = P18 = P19 = P20 = P21 = P22 = P23 = P24 = P25 = P26 = P27 = P28 = P29 = Question 6 Use the information from the case to devise values for all probability nodes for the decision tree. Q1 = Q2 = Q3 = Q4 = Q5 = Q6 = Q7 = Q8 = Q9= Q10= Q11 = Q12 = Q13 = Q14 = Q15=
case-jim-wells-vice-president-for-manufacturing-of-the-northern-airplane-company-is-exasperated-his-walk-through-the-companys-most-important-plant-this-morning-has-left-him-in-a-foul-mood-ho-42745

CASE Jim Wells, vice-president for manufacturing of the Northern Airplane Company, is exasperated. His walk through the companyā€™s most important plant this morning has left him in a foul mood. However, he now can vent his temper at Jerry Carstairs, the plantā€™s production manager, who has just been summoned to Jimā€™s office. ā€œJerry, I just got back from walking through the plant, and I am very upset.ā€ ā€œWhat is the problem, Jim?ā€ ā€œWell, you know how much I have been emphasizing the need to cut down on our in-process inventory.ā€ ā€œYes, weā€™ve been working hard on that,ā€ responds Jerry. ā€œWell, not hard enough!ā€ Jim raises his voice even higher. ā€œDo you know what I found by the presses?ā€ ā€œNo.ā€ ā€œFive metal sheets still waiting to be formed into wing sections. And then, right next door at the inspection station, 13 wing sections! The inspector was inspecting one of them, but the other 12 were just sitting there. You know we have a couple hundred thousand dollars tied up in each of those wing sections. So between the presses and the inspection station, we have a few million bucks worth of terribly expensive metal just sitting there. We canā€™t have that!ā€ The chagrined Jerry Carstairs tries to respond. ā€œYes, Jim, I am well aware that that inspection station is a bottleneck. It usually isnā€™t nearly as bad as you found it this morning, but it is a bottleneck. Much less so for the presses. You really caught us on a bad morning.ā€ ā€œI sure hope so,ā€ retorts Jim, ā€œbut you need to prevent anything nearly this bad happening even occasionally. What do you propose to do about it?ā€ Jerry now brightens noticeably in his response. ā€œWell actually, Iā€™ve already been working on this problem. I have a couple proposals on the table and I have asked an operations research analyst on my staff to analyze these proposals and report back with recommendations.ā€ ā€œGreat,ā€ responds Jim, ā€œglad to see you are on top of the problem. Give this your highest priority and report back to me as soon as possible.ā€ ā€œWill do,ā€ promises Jerry. Here is the problem that Jerry and his OR analyst are addressing. Each of 10 identical presses is being used to form wing sections out of large sheets of specially processed metal. The sheets arrive randomly to the group of presses at a mean rate of 7 per hour. The time required by a press to form a wing section out of a metal sheet has an exponential distribution with a mean of 1 hour. When finished, the wing sections arrive randomly at an inspection station at the same mean rate as the metal sheets arrived at the presses (7 per hour). A single inspector has the full-time job of inspecting these wing sections to make sure they meet specifications. Each inspection takes her 7.5 minutes, so she can inspect 8 wing sections per hour. This inspection rate has resulted in a substantial average amount of in-process inventory at the inspection station (i.e., the average number of wing sheets waiting to complete inspection is fairly large), in addition to that already found at the group of machines. The cost of this in-process inventory is estimated to be $8 per hour for each metal sheet at the presses or each wing section at the inspection station. Therefore, Jerry Carstairs has made two alternative proposals to reduce the average level of in-process inventory. Proposal 1 is to use slightly less power for the presses (which would increase their average time to form a wing section to 1.2 hours), so that the inspector can keep up with their output better. This also would reduce the cost of the power for running each machine from $7.00 to $6.50 per hour. (By contrast, increasing to maximum power would increase this cost to $7.50 per hour while decreasing the average time to form a wing section to 0.8 hour.) Proposal 2 is to substitute a certain younger inspector for this task. He is somewhat faster (albeit with some variability in his inspection times because of less experience), so he should keep up better. (His inspection time would have an Erlang distribution with a mean of 7.2 minutes and a shape parameter k = 2.) This inspector is in a job classification that calls for a total compensation (including benefits) of $19 per hour, whereas the current inspector is in a lower job classification where the compensation is $17 per hour. (The inspection times for each of these inspectors are typical of those in the same job classification.) You are the OR analyst on Jerry Carstairs' staff who has been asked to analyze this problem. He wants you to "use the latest OR techniques to see how much each proposal would cut down on in-process inventory and then make your recommendations." To provide a basis of comparison, begin by evaluating the status quo. Determine the expected amount of in-process inventory at the presses and at the inspection station. Then calculate the expected total cost per hour when considering all of the following: the cost of the in-process inventory, the cost of the power for running the presses, and the cost of the inspector. (25 Pts) What would be the effect of proposal 1? Why? Make specific comparisons to the results from part (a). Explain this outcome to Jerry Carstairs. (25 Pts) Determine the effect of proposal 2. Make specific comparisons to the results from part (a). Explain this outcome to Jerry Carstairs. (25 pts) Make your recommendations for reducing the average level of in-process inventory at the inspection station and at the group of machines. Be specific in your recommendations and support them with quantitative analysis like that done in part (a). Make specific comparisons to the results from part (a), and cite the improvements that your recommendations would yield. (25 Pts)
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