Task 1 (10 marks) (Max. 500 words)
Mossy Mowers Ltd, which produces lawn mowers, purchases 27,500 units of a rotor blade part each year at a cost of $35 per unit. The company requires a 13% annual rate of return on investment. In addition, other carrying costs (for insurance, materials handling, breakage and so on) are $9.50 per unit per year. The relevant ordering cost per purchase order is $125.
Required
1. Calculate Mossy Mowers' EOQ for the rotor blade part.
2. Calculate Mossy Mowers' annual relevant ordering costs for the EOQ calculated in requirement 1.
3. Calculate Mossy Mowers' annual relevant carrying costs for the EOQ calculated in requirement 1.
4. Assume that demand is uniform throughout the year and known with certainty so that there is no need for safety stocks. The purchase order lead time is one week. Calculate Mossy Mowers' reorder point for the rotor blade part.
5. What are the weaknesses of the EOQ model? Can you recommend any alternative ways of managing inventory?
Task 2
Winner Ltd ("Winner") produces medals for winners of major sporting events and other contests. Its manufacturing plant has the capacity to produce 10,000 medals each month. Current production and sales are 7,500 medals per month. The company normally charges $150 per medal.
Cost information for the current activity level is as follows:
Variable costs that vary with number of units produced:
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Direct materials
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$262,500
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Direct manufacturing labour
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300,000
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Variable costs (for set-ups, materials handling, quality control and so on) that vary with number of batches, 150 batches × $500 per batch
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75,000
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Fixed manufacturing costs
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275,000
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Fixed marketing costs
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175,000
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Total costs
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$1,087,500
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Winner has just received a special one-time-only order for 2,500 medals at $100 per medal. Accepting the special order would not affect the company's regular business. Winner makes medals for its existing customers in batch sizes of 50 medals (150 batches × 50 medals per batch = 7,500 medals). The special order requires Winner to make the medals in 25 batches of 100 each.
Required
1. Should Winner accept this special order? Show your calculations.
2. Suppose plant capacity were only 9,000 medals instead of 10,000 medals each month. The special order must either be taken in full or be rejected completely. Should Winner accept the special order? Show your calculations.
3. As in requirement 1, assume that monthly capacity is 10,000 medals. Winner is concerned that, if it accepts the special order, its existing customers will immediately demand a price discount of $10 in the month in which the special order is being filled.
They would argue that Winner's capacity costs are now being spread over more units and that existing customers should get the benefit of these lower costs. Should Winner accept the special order under these conditions? Show your calculations.
Task 3
Julie is a stay-at-home mum who often finds herself looking after friend's children as well as her own. She often jokes that her house is like a day-care centre but sometimes it feels more like reality and gives her an idea. Julie loves children, but is also impatient to get back into the ranks of the ‘paid workforce'.
She has come up with a plan that may combine the two - setting up her own small day-care service in a nearby vacant building that is up for lease. She would take children from Mondays to Fridays each week. She estimates monthly variable costs per child will be:
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Lunch and snacks
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$150
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Educational supplies
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60
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Other supplies (paper products, toiletries, etc.)
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20
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Total
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$230
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Julie also estimates that monthly fixed costs will consist of:
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Rent
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$2,150
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Utilities
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200
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Insurance
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250
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Salary for additional part time staff membe
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2,350
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Miscellaneous
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650
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Total
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$5,600
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Julie plans to charge each parent $580 per child per month.
Required
As her accountant and trusted advisor, Julie would like you to answer a number of questions:
1. Calculate the number of children Julie would need to enrol in her service in order for the business to break-even.
2. Of course, Julie would like to make a profit. Assuming a target profit of $10,500 per month, calculate the number of children who must be enrolled to make this number.
3. Assume that the building rent increased to $3,150 and that parents are keen that the children go on some on field trips. Monthly costs of the field trips are expected to be $1,300. By how much should Julie increase fees per child to meet the target profit of $10,500 per month, assuming the same number of children as in requirement 2?
Task 4: Wenson and Gommi Ltd (WGL) produces babycare products. WGL prides itself on its commitment to environmental protection and many of its advertisements focus on its slogan, ‘Taking care of your baby, and your baby's future'.
One of their most popular products is a sky-blue nappy with pictures of the earth that glow softly in the dark. Producing this effect requires a chemical process that produces dioxins (a highly toxic and persistent organic chemical) as a waste product. The Australian government introduced a national approach to deal with dioxins that included measurement and reduction programs.
In response WGL decided to outsource production to a Pacific island nation where unemployment is a major problem. WGL does not have any ownership interests in this production company, but is its only customer. The government of this Pacific nation was very pleased to have this employment opportunity moving to their country and has been willing to ignore the possible detrimental impact on their environment. Now the only problem facing WGL are criticisms that the nappies are not biodegradable. WGL is not concerned, however, since that is a problem for its customers.
Required
1. Discuss the principle of life-cycle analysis and how it might apply to WGL.
2. WGL is considering preparing GRI reports. Will WGL be required to report on the production of the nappies? Why or why not?
3. What options might be available to manage WGL's environmental impact?
4. What arguments can you provide for WGL to incur additional costs to reduce the environmental impact of the production and disposal of their nappies, even though production and disposal are performed by others?
Part B: Critical reflection (approximately 1,000 words)
You had to practically apply the decision making models and tools you have learned about throughout the subject.
Reflect on your experience in completing the various assessments in this course. What major learning on measurement and decision making can you apply in practice as a manager in your organisation?
The list below provides some questions you may wish to consider in your critical reflection. These are suggestions only. You may address issues that are not on this list.
1. Has what you have learned in this subject created an increased awareness of the importance of decision making as a management activity? Why or why not?
2. Which model or tool most influenced you as you worked your way through the subject? Why?
3. How critical do you believe the quality of decision making is to an organisation? Why?
4. Which of the models and tools would you use as a manager? Why?