Managers at Livermore Fabricating Company are reviewing the economic feasibility of manufacturing a part that the company currently purchases from a supplier. The forecasted annual demand for the part is 5200 units. Livermore operates a 5-day work week and 250 days per year. Livermore's financial analysts established a cost of capital of $77,000 or 14% for the use of funds for investments within the company. In addition, over the past year, $550,000 was the average investment in the company's inventory. Accounting information shows that a total of $24,000 was spent on taxes and insurance related to the company's inventory. In addition, an estimated $9000 was lost due to inventory shrinkage, which included damaged goods as well as pilferage. A remaining $15,000 was spent on warehouse overhead, including utility expenses for heating and lighting. An analysis of the purchasing operation shows that approximately 2 hours are required to process and coordinate order for the part regardless of the quantity ordered. Purchasing salaries average $24 per hour, including employee benefits. In addition, a detailed analysis of 125 orders showed that $2375 was spent on the telephone, paper, and postage directly related to the ordering process. One-week lead time is required to obtain the part from the supplier. Currently, the company has a contract to purchase the part from a supplier at a cost of $19 per unit. However, qver the past few months, thompany's production capacity has been expanded. As a result, excess capacity is now available in certain production departments, and the company is considering the alternative of producing the parts itself. Forecasted utilization of equipment shows that production capacity will be available for the part being considered. The production capacity is available at the rate of 1000 units per month, with up to 25 weeks of production time available. Management believes that with a 2-week lead time, schedules can be arranged so that the part can be produced whenever needed. The demand during the two-week lead. Production costs are expected to be $17 per part. A concern of the management is that setup costs will be substantial. The total cost of labor and lost production time is estimated to be $50 per hour, and a full 8-hour shift will be needed to set up the equipment for producing the part. Answer the following questions to determine whether the company should continue to purchase the part from the supplier or begin to produce the part itself. 1. An analysis of the holding costs, including the appropriate annual holding cost rate 2. An analysis of ordering costs, including the appropriate cost per order from the supplier 3. An analysis of setup costs for the production operation 4. Development of the inventory policy for the following two alternatives: 1. Ordering a fixed quantity Qfrom the supplier to be $50 per hour, and a full 8-hour shift will be needed to set up the equipment for producing the part. Answer the following questions to determine whether the company should continue to purchase the part from the supplier or begin to produce the part itself. 1. An analysis of the holding costs, including the appropriate annual holding cost rate 2. An analysis of ordering costs, including the appropriate cost per order from the supplier 3. An analysis of setup costs for the production operation 4. Development of the inventory policy for the following two alternatives: 1. Ordering a fixed quantity Q from the supplier 2. Ordering a fixed quantity Q from-plant production 5. Include the following in the policies of parts 4(a) and 4(b): 1. Optimal quantity Q* 2. Number of order or production runs per year 3. Cycle time 4. Reorderpoint 5. Expected maximum inventory 6. Average inventory 7. Annual holding cost 8. Annual ordering cost 9. The annual cost of the units purchased or manufactured 10. The total annual cost of the purchase policy and the total annual cost of the production policy 6. Make a recommendation as to whether the company should purchase or manufacture the part. What savings are associated with your recommendation as compared with the other alternative? Type in your calculations and answers to the questions. Review the formulas on pages 421 to 429. Managers at Livermore Fabricating Company are reviewing the economic feasibility of manufacturing a part that the company currently purchases from a supplier. The forecasted annual demand for the part is 5200 units. Livermore operates a 5-day work week and 250 days per year. Livermore's financial analysts established a cost of capital of $77,000 or 14% for the use of funds for investments within the company. In addition, over the past year, $550,000 was the average investment in the company's inventory. Accounting information shows that a total of $24,000 was spent on taxes and insurance related to the company's inventory. In addition, an estimated $9000 was lost due to inventory shrinkage, which included damaged goods as well as pilferage. A remaining $15,000 was spent on warehouse overhead, including utility expenses for heating and lighting. An analysis of the purchasing operation shows that approximately 2 hours are required to process and coordinate order for the part regardless of the quantity ordered. Purchasing salaries average $24 per hour, including employee benefits. In addition, a detailed analysis of 125 orders showed that $2375 was spent on the telephone, paper, and postage directly related to the ordering process. One-week lead time is required to obtain the part from the supplier. Currently, the company has a contract to purchase the part from a supplier at a cost of $19 per unit. However, qver the past few months, thompany's production capacity has been expanded. As a result, excess capacity is now available in certain production departments, and the company is considering the alternative of producing the parts itself. Forecasted utilization of equipment shows that production capacity will be available for the part being considered. The production capacity is available at the rate of 1000 units per month, with up to 25 weeks of production time available. Management believes that with a 2-week lead time, schedules can be arranged so that the part can be produced whenever needed. The demand during the two-week lead. Production costs are expected to be $17 per part. A concern of the management is that setup costs will be substantial. The total cost of labor and lost production time is estimated to be $50 per hour, and a full 8-hour shift will be needed to set up the equipment for producing the part. Answer the following questions to determine whether the company should continue to purchase the part from the supplier or begin to produce the part itself. 1. An analysis of the holding costs, including the appropriate annual holding cost rate 2. An analysis of ordering costs, including the appropriate cost per order from the supplier 3. An analysis of setup costs for the production operation 4. Development of the inventory policy for the following two alternatives: 1. Ordering a fixed quantity Qfrom the supplier to be $50 per hour, and a full 8-hour shift will be needed to set up the equipment for producing the part. Answer the following questions to determine whether the company should continue to purchase the part from the supplier or begin to produce the part itself. 1. An analysis of the holding costs, including the appropriate annual holding cost rate 2. An analysis of ordering costs, including the appropriate cost per order from the supplier 3. An analysis of setup costs for the production operation 4. Development of the inventory policy for the following two alternatives: 1. Ordering a fixed quantity Q from the supplier 2. Ordering a fixed quantity Q from-plant production 5. Include the following in the policies of parts 4(a) and 4(b): 1. Optimal quantity Q* 2. Number of order or production runs per year 3. Cycle time 4. Reorderpoint 5. Expected maximum inventory 6. Average inventory 7. Annual holding cost 8. Annual ordering cost 9. The annual cost of the units purchased or manufactured 10. The total annual cost of the purchase policy and the total annual cost of the production policy 6. Make a recommendation as to whether the company should purchase or manufacture the part. What savings are associated with your recommendation as compared with the other alternative? Type in your calculations and answers to the questions. Review the formulas on pages 421 to 429