CASE 1 WAGNER FABRICATING COMPNAY.docx - Math Problem Example

Theodore Greenberg October 22, 2008 Wagner production analysis Should investment capital be used to create increase production of Part(p) now ordered from outside sources. Gross savings on production at a price of 17 $ versus 18 $ would result in a savings of 12853 $ however after allowing for 2 week inventory safety margin backup supply the savings would be decreased by 4250$ with holding and insurance costs continuing. If investing in this new production is solely based on the production of part p we would not advise investing in increased production facilities.

However it has been determined that out of the 250 day work year 22 cycles or production runs would need to be made keep a steady production utilization intake/output ratio. Exact production details were not given to us, but we cannot for see more than 150 days of production time being used leaving 100 days for a part p1 to be produced making the new facility truly profitable.We also advise that production/order levels for at least year 1 of production should be started at 50% to make appropriate quality testing and this can be increased to 100% if all goes wellAnalysis of production versus purchasing Wagner manufacturingholding costsCostspost productionChangeinventory insurance and tax24000-23129.

63 % savingsdamages90000no changeutilities150000no changesavings on holding-2312-2312 savings on purchashinglaborx2hrs50 purchases/year2856-2800materials for purchase =50/12550/125*2375-950Total purchasing costs-3750-3750Purchasing and holding savings-6062production setup and costlabor x8hr21.33 runs/year*504008533ordering 0 parts0producing 3200173200544006293362933producing 3200 with holding &purchasing savings50809ordering 3200 18320057600purchasing and holding costs6062Total purchasing costs63662safety margin = 2 weeks of runs17250parts-4250adjusted production savings8250gross savings12853* in the worked in this abstract we expect 8hr per cycle to setup equipment for production run