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Refer to the HCEC case. My solution spreadsheet is attached.

ALL I NEED IS AN ANSWER TO BELOW QUESTIONS. THE SOLUTION IS ALREADY ATTACHED FOR THE MAIN QUESTIONS.

Assume the Mexican Company charges $62.00, including their markup. HCEC must pay the transportation cost directly. (The spreadsheet determines breakeven prices using this assumption.)

(a) Explain, in detail, the calculation for premium shipment savings (F34 in Premium Shipment worksheet). Use formulas. Explain both components of the 0.502 (0.348 and 0.153)

(b) What happens if the probability of stock-out is changed from 0.004 to 0.05, to (i) Safety stock, (ii) Transport cost, and (iii) the net advantage that CMI has over the Mexican plant? Give numbers and explain the reasoning, briefly.

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a)Explanation:
<br>
<br>.348 is calculated by: Safety stock of (Regular- Premium)*(Cost/unit +transportation cost/unit)*(carrying cost rate))/(mean annual demand)
<br> = ((166.05-36.75)*(64+3.40)*.30)/(30*250).
<br>
<br>.153 is calculated as :(Difference between mean Regular and Premium Lead time/(no of days in a year))*cost/unit*carrying cost.
<br> = ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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