New Design - Component Commonality (Single Source)

Fliboard uses continuous review policy

- Lot size is calculated using economic order quantity (EOQ)

- Now Fliboard decides to use Samsung battery for both hoverboards so that demands of batteries can be aggregated

Target CSL

- Samsung battery: 0.99

Replenishment lead time

- Samsung battery: 4 weeks

Fixed order cost

- Samsung battery: $1,000 per order

Inventory holding cost of battery

- Samsung battery: $60

Calculate following values for replenishing battery

(3-1) Lot size (Q) For Samsung battery

(3-2) Safety inventory (ss) For Samsung battery

(3-3) Annual ordering cost (AOC) For Samsung battery

(3-4) Annual holding cost (AHC) For Samsung battery

(3-5) Annual material cost including battery (AMC) For Proboard For Babyboard (cost increases due to using Samsung battery)

Calculate total profit of the current operation (two hoverboards)

- Assume annual ordering cost and holding cost of all components except batteries are negligible

(3-6) Total profit Profit = Revenue - Total Cost

Where total cost is sum of:

- Annual material cost

- Annual ordering cost

- Annual holding cost