Cost Management

PROBLEM SOLVING 1. Company XYZ is reassessing its warehouse operations to improve efficiency and reduce costs. Currently, the company has a warehouse that can store up to 100,000 units of its product. The annual holding cost per unit is S5, and the company operates at an average inventory level of 75,000 units. The warehouse operates 300 days a year. To improve operations, XYZ is considering an investment in automated storage and retrieval systems (AS/RS) that would reduce the average inventory level to 50,000 units but increase the annual holding cost per unit to $6 due to higher energy and maintenance costs. Questions: (5 points each) a. What is the current annual cost of holding inventory for Company XYZ? b. What would be the new annual holding cost if the company invests in the automated system? c. Calculate the annual cost difference before and after the investment in the AS/RS. d. If the AS/RS system costs $500,000 to install and is expected to last for 10 years, what is the annualized cost of the system? e. Considering the annualized cost of the AS/RS system and the change in holding costs, should Company XYZ proceed with the investment? Assume no salvage value at the end of the system's life. 2. ElectroComp, a company specializing in electronic components, is considering outsourcing its circuit board production to TechSource. Currently, ElectroComp's in-house production details are as follows: - Fixed costs: $600,000 per year. - Variable costs: S50 per circuit board. - Annual demand: 20,000 circuit boards. O 2. ElectroComp, a company specializing in electronic components, is considering outsourcing its circuit board production to TechSource. Currently, ElectroComp's in-house production details are as follows: - Fixed costs: $600,000 per year. - Variable costs: $50 per circuit board. - Annual demand: 20,000 circuit boards. TechSource offers to produce the circuit boards at a variable cost of $40 per unit with an annual fixed fee of $300,000. However, due to concerns about quality control, ElectroComp estimates potential annual losses of $100,000 due to potential quality issues from outsourcing. Questions: (5 points each) a. Whatis ElectroComp's current annual cost of producing circuit boards? b. What would be the annual cost of producing circuit boards if ElectroComp outsources to TechSource, considering potential quality losses? . Calculate the cost savings or loss from outsourcing. Should ElectroComp outsource based on these financials alone? d. ElectroComp is also considering the impact of outsourcing on their Theory of Constraints (TOC) process. If the internal production is currently the system's constraint, how might outsourcing affect the throughput if TechSource can deliver circuit boards faster. e. Lastly, evaluate how outsourcing might affect ElectroComp's capacity concepts. If the in-house operation's current capacity utilization is at 80%*" for 20,000 units per year, what will be the new capacity utilization percentage if outsourcing allows ElectroComp to increase demand by 25% without any additional investment