InventoryExplanation: Catco purchases parts, such as tires, engines,seats, and axles for construction equipment (such...InventoryExplanation:...

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Accounting

Inventory
Explanation: Catco purchases parts, such as tires, engines,seats, and axles for construction equipment (such as a bulldozer).Catco is concerned with how much inventory is in the supply chainfor several important reasons. When Catco purchases the parts(sends a purchase order (PO) to a supplier), Catco is nowresponsible to pay for the parts, which they do with cash(financial term, not really $20 bills). Cash must be financedthrough debt or equity (think interest rate on your credit card).This interest rate (weighted average cost of capital) is usuallybetween 6-12% depending on the credit worthiness of the company. Inaddition, Catco needs to use warehouse space to store the partswhen they arrive, they need to insure the parts, some get damaged,and possibly some will become obsolete (they will move to a newmodel of construction equipment that does not use the same part soit is no longer useful and they need to dispose of it). These costsadded together make up an inventory “holding cost” which istypically between 12-24% of the value of the item.
Sample Calculation: Catco produces about 120 bulldozers per weekand works four (Mon-Thurs) 10-hour shifts. They need 4 tires perbulldozer and 480 tires can fit on a single truck. Catco ordersonce a week (assume they pay when they order). Transportation takesone week. They hold 2 weeks worth of tires in safety stock. Map outthe inventory in the supply chain. How much do they have at anygiven time (how much at the beginning of the week vs. the end ofthe week)? If the tires cost $50 each and the annual inventoryholding cost is 18%: Note: assume 52 weeks in a year
1. What is the annual holding cost of transportationinventory?
2. What is the annual holding cost of safety stockinventory?
3. What is the cost per tire for transportation inventory andsafety stock inventory?

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Answer Data Given Assuming no of weeks in a year 52 weeks Annual Bulldozer production Production of bulldozer per week Noof week 12052 6240 Annually 1 Bulldozer requires 4 tires Annual Demand of tire 62404 24960 D lead time for tire 1 week Safety stock 2 weeks of demand 2480 960 See Answer

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In: AccountingInventoryExplanation: Catco purchases parts, such as tires, engines,seats, and axles for construction equipment (such...InventoryExplanation: Catco purchases parts, such as tires, engines,seats, and axles for construction equipment (such as a bulldozer).Catco is concerned with how much inventory is in the supply chainfor several important reasons. When Catco purchases the parts(sends a purchase order (PO) to a supplier), Catco is nowresponsible to pay for the parts, which they do with cash(financial term, not really $20 bills). Cash must be financedthrough debt or equity (think interest rate on your credit card).This interest rate (weighted average cost of capital) is usuallybetween 6-12% depending on the credit worthiness of the company. Inaddition, Catco needs to use warehouse space to store the partswhen they arrive, they need to insure the parts, some get damaged,and possibly some will become obsolete (they will move to a newmodel of construction equipment that does not use the same part soit is no longer useful and they need to dispose of it). These costsadded together make up an inventory “holding cost” which istypically between 12-24% of the value of the item.Sample Calculation: Catco produces about 120 bulldozers per weekand works four (Mon-Thurs) 10-hour shifts. They need 4 tires perbulldozer and 480 tires can fit on a single truck. Catco ordersonce a week (assume they pay when they order). Transportation takesone week. They hold 2 weeks worth of tires in safety stock. Map outthe inventory in the supply chain. How much do they have at anygiven time (how much at the beginning of the week vs. the end ofthe week)? If the tires cost $50 each and the annual inventoryholding cost is 18%: Note: assume 52 weeks in a year1. What is the annual holding cost of transportationinventory?2. What is the annual holding cost of safety stockinventory?3. What is the cost per tire for transportation inventory andsafety stock inventory?