1. What was the utilization achieved by CRU in 1996?

Utilization = Inventory on rent / Inventory owned

Inventory on rent = 1,000 units per week x 8 weeks = 8,000

Inventory owned = 8,000 + 500 + 1,500 + 1,000 + 905 + 500 + 2,000 = 14,405 Utilization = 55% (8,000 / 14,405)

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CustomerReceivingStatus 24Status 40Status 41Parts (order forms in Que)Supplier (waiting for parts)Status 42Status 20 Throughput (units/week)100010007004054054054054051000

(1000 x 70%)[(1000 x 30%) +(700 x 15%)] [(700 x 85%) + 405] Inventory (units)8000500150010009055004055002000

(8 weeks x 1000 units) (500 + 405) I = RxT (405 x 1 week) Flow Time (weeks)80.52.14292.46912.23461.234611.23462

(8000/1000)(500/1000)(1500/700)(1000/405)(905/405)(500/405) (500/405)(2000/1000)

Calculate the average weekly contribution margin (revenues – variable costs) to CRU in 1996. Ignore labor and facility costs in this calculation. We assume that they are fixed.

How does the contribution margin compare with the weekly depreciation?

•Number of units on rent = 8,000

•Total number of units = 14,405

•Utilization = 0.56 (56%)

•Revenue = 8,000 x 30 = $240,000/wk

•Variable Cost = 25 x 1,000 (R) + 25 x 1,000 (S) + 4x700x.85 + 150 x 405 = $113,130/wk •Contribution Margin = $126,870/wk

•Depreciation = 14,405 x ($1000/156wks) = $92,340/wk

•CM- Depreciation = $126,870-$92,340 = $34,530,

Calculate the average weekly contribution margin (revenues – variable costs) to CRU in 1996. Ignore labor and facility costs in this calculation. We assume that they are fixed. How does the contribution margin compare with the weekly depreciation?

•Number of units on rent = 8,000

•Total number of units = 14,405

•Utilization = 0.56 (56%)

•Revenue = 8,000 x 30 = $240,000/wk

•Variable Cost = 25 x 1,000 (R) + 25 x 1,000 (S) + 4x700x.85 + 150 x 405 = $113,130/wk •Contribution Margin = $126,870/wk

•Depreciation = 14,405 x ($1000/156wks) = $92,340/wk

•CM- Depreciation = $126,870-$92,340 = $34,530,

Assume that Operations will be able to ensure that all buffer sizes are the same as they were in 1996 for all three options (status 20 buffer continues at 2 weeks). Which of the three options would you recommend? Why?

In order to solve this problem we will first find computers rented per week.

Computers rented per week:

Option A: .6*1500+.3*1000+.1*600= 900+300+60= 1260

Option B: .4*1500+.4*1000+.2*600= 600+400+120= 1120

Option C: .25*1500+.5*1000+.25*600= 375+500+150= 1025, status 20 buffer is at 2 weeks (given)

CASE 1Buffer Sizes are same

OPTION ACustomerReceivingStatus 24Status 40Parts/ order formsSupplierStatus 41Status 42Status 20 Throughput(Units/Week)126012608825105105105105100.85*882+510 = 1260 Inventory(Units)8000500150010005004059055002520

Flow Time(Weeks)6.350.41.71.960.980.791.770.982

OPTION BCustomerReceivingStatus 24Status 40Parts/order formsSupplierStatus 41Status 42Status 20 Throughput(Units/Week)112011207844544544544544540.85*784+454 = 1120

Inventory(Units)8000500150010005004059055002240

Flow Time(Weeks)7.140.451.912.21.10.8921.12

OPTION CCustomerReceivingStatus 24Status 40Parts/order formsSuppliersStatus 41Status 42Status 20 Throughput(Units/Week)102510257184154154154154150.85*718+415 = 1025

Inventory(Units)8000500150010005004059055002050

Flow Time(Weeks)7.800.492.092.411.200.982.181.202

Total number of inventory units:

Option A: 8000+500+1500+1000+905+500+2520=14925

Based on the status quo of 14405 in 1996, this option requires 14925-14405 = 520 more units Option B: 8000+500+1500+1000+905+500+2240=14645

Based on the status quo of 1996, this option requires 14645-14405 = 240 more units Option C: 8000+500+1500+1000+905+500+1900=14455

Based on the status quo of 1996, this option requires 14455-14405 = 50 more units Assume that Operations will be able to ensure that all buffer sizes are the same as they were in 1996 for all three options (status 20 buffer continues at 2 weeks). Which of the three options would you recommend? Why?

In order to solve this problem we will first find computers rented per week.

Computers rented per week:

Option A: .6*1500+.3*1000+.1*600= 900+300+60= 1260

Option B: .4*1500+.4*1000+.2*600= 600+400+120= 1120

Option C: .25*1500+.5*1000+.25*600= 375+500+150= 1025, status 20 buffer is at 2 weeks (given)

CASE 1Buffer Sizes are same

OPTION ACustomerReceivingStatus 24Status 40Parts/ order formsSupplierStatus 41Status 42Status 20 Throughput(Units/Week)126012608825105105105105100.85*882+510 = 1260 Inventory(Units)8000500150010005004059055002520

Flow Time(Weeks)6.350.41.71.960.980.791.770.982

OPTION BCustomerReceivingStatus 24Status 40Parts/order formsSupplierStatus 41Status 42Status 20 Throughput(Units/Week)112011207844544544544544540.85*784+454 = 1120

Inventory(Units)8000500150010005004059055002240

Flow Time(Weeks)7.140.451.912.21.10.8921.12

OPTION CCustomerReceivingStatus 24Status 40Parts/order formsSuppliersStatus 41Status 42Status 20 Throughput(Units/Week)102510257184154154154154150.85*718+415 = 1025

Inventory(Units)8000500150010005004059055002050

Flow Time(Weeks)7.800.492.092.411.200.982.181.202

Total number of inventory units:

Option A: 8000+500+1500+1000+905+500+2520=14925

Based on the status quo of 14405 in 1996, this option requires 14925-14405 = 520 more units Option B: 8000+500+1500+1000+905+500+2240=14645

Based on the status quo of 1996, this option requires 14645-14405 = 240 more units Option C: 8000+500+1500+1000+905+500+1900=14455

Based on the status quo of 1996, this option requires 14455-14405 = 50 more units