*****I only need answers for 4, 5, and 6*****

Develop a managerial report for the Hall Manufacturing Co, which will address the question as to whether the company should purchase or manufacture the part itself. Include the following factors in your report:

1. An analysis of the holding cost.
2. An analysis of the ordering cost.
3. An analysis of setup cost.
4. Develop an inventory for ordering a quantity form the supplier and producing a quantity in house.
5. Include such information as Q, number of orders/production runs, cycle time, ROP, amount of safety stock, expected maximum inventory, annual cost of the units purchase or manufactured.
6. Make a recommendation to management whether the company should purchase or manufacture the part and the cost savings associated with your recommendation.

Courtney Hall, the CEO, and her managers are reviewing the economic feasibility of manufacturing a part that the company currently purchases from a supplier. Forecasted demand for this part is 11,600 units. Hall operates 250 days per year.

Halls financial analysts established the cost of 10% for the use of funds for investments within the company. Also, over the past year $600,000 was the average investment in the companys inventory. Accounting information shows that a total of $40,000 was spent on taxes and insurance related to the companys inventory. Additionally, an estimated $10,500 was lost to inventory shrinkage, this included broken and damaged goods, and pilferage. $21,000 was spent on warehouse overhead, including expenses for heating and lighting.

Two hours are required to process and coordinate an order for the part regardless of the quantity ordered. Purchasing salaries average $26 per hour, including benefits. A detailed accounting analysis on 120 orders revealed that $2,400 was expensed for internet, paper and postage directly related to this ordering process.

Lead time for this part is one-week. The use of the part during the lead time is normally distributed with a mean of 150 units and a standard deviation of 15 units. The companys policy regarding stock-outs is that one stock-out per year is permitted.

The company has a current contract to purchase the part from the supplier for $22 per unit. Hall has increased its manufacturing capacity and is considering producing the part in house. The utilization of the increased capacity will produce at a rate of 1,600 units per month with up to 5 months of production time available. Management believes that with a two-week lead-time it can schedule the production of the part when needed. . The use of the part during the lead time is normally distributed with a mean of 168 units and a standard deviation of 18 units. Production costs are estimated at $19 per unit.

A major concern for the company is the fact that it will take a full 8 hour shift to set up the equipment. The total cost of labor is estimated to be $70 per hour.