In mainland China, a Chinese herbal medication called Lianhua Qingwen (LH) capsule is often used to speed
Question:
In mainland China, a Chinese herbal medication called Lianhua Qingwen (LH) capsule is often used to speed up the recovery of COVID-19 symptoms. A drug store in Hong Kong wishes to buy LH capsules from a drug factory in Hebei Province, North China, and sell them to Hong Kong customers. The following information is from a two-stage make-to-order (MTO) supply chain.
Two stages
Seller: Chinese drug manufacturer produces and sells the LH capsules to the Hong Kong drug store
Buyer: Hong Kong drug store is a retailer that faces customer demand
Retailer information
The wholesale price paid by the retailer to the manufacturer is $55 per pack
The sale price of LH capsules is $120 per pack
Salvage value is $0 (unsold LH capsules cannot be resold to third parties)
Purchase lot size is 500 packs
Manufacturer information
Production lot size is 500 packs
Salvage value is $0 (unsold LH capsules cannot be resold to third parties)
The fixed production cost is $5,000
Variable production cost is $20 per packs
When answering the following questions, show the units and processes of calculation.
Question:
The Chinese medication manufacturer proposes to offer the Hong Kong drug store a BUY-BACK contract in which the manufacturer will buy unsold LH capsules from the drug store for $10 per pack in order to induce the drug store to place a larger order. The wholesale price, as well as fixed and variable production expenses, stay unchanged for the manufacturer. With this buy-back contract, the drug store has calculated the expected profits for various order quantities (see the table below).
1(a) Based on the buy-back contract, determine the drug store’s expected profit if the order quantity is 3,000 packs, and determine the optimal order quantity that will maximize the drug store’s profit.
1(b) If the drug store adopts the optimal order quantity of Q1(a), determine the manufacturer’s expected profit.
1(c) Describe TWO drawbacks of using the buy-back contract in this case.
1d) Explain TWO reasons that support transportation of the LH capsules from China to Hong Kong by air.
Computer Networking A Top-Down Approach
ISBN: 978-0136079675
5th edition
Authors: James F. Kurose, Keith W. Ross