Trees generally grow from 18 to 24 inches each year. The desirable trees are between 4 and
Question:
Trees generally grow from 18 to 24 inches each year. The desirable trees are between 4 and 8 feet in height. It generally takes at least two years for a tree to mature to where it can be sold. If a tree gets too large, it can be difficult to sell due to the problem of transporting to the customer. The inside joke between farm managers is that old trees become "boards." Managing the growth/sell cycle is important to the success of the farm.
The decision about when a type of tree should be planted and how many trees to plant are made by management based on experience and some guidelines that have been learned over time. In general, the fast-moving, high-volume trees are generally planted every other year. Slower-moving, low-demand trees are planted every three years. The cutoff for high- versus low-volume trees is demand of 100 per year. This is certainly not an exact science since there is much variability in the demand and in the growing time for the trees. Trees for landscape projects are generally specified by landscape architects and designers. Their selections depend on the location where the trees will be planted.
Expected Yearly Demand | Stand Deviation | qty for sale | in field qty | ||
Xmas Palm | 81 | 31 | 74 | 440 | |
Wash | 165 | 155 | 374 | 4 | |
Limbo | 159 | 35 | 70 | 0 | |
oinciana | 49 | 32 | 42 | 394 | |
I can | 185 | 68 | 290 | 226 |
This exercise is designed to help structure the timing and quantity of planting decisions using data from the inventory control spreadsheet that the farm has recently developed. The inventory system at the farm tracks the number of each type of tree, such as Christmas Palm and Rosetta. Trees are tracked in field(s) where they are planted and by row within the field. Trees of the same type are often located in different fields on the farm, and the inventory system aggregates the status of each type over the locations.
When a tree is initially planted it is categorized as "in-field" with a projected "ready" date. When the tree matures, categorization is changed to "for-sale." Batches of trees are planted at the same time, typically in consecutive rows in a field, making it easier to identify trees that are for sale to customers.
When a tree is sold, the salesperson goes into the field and "tags" the tree for removal from the field and pickup by the customer (typically multiple trees are included in an order). Tags are colored ribbons that are tied around the tree. A unique color is used for each order. Tagging is a ritual done by the salesperson to ensure that the appropriate quality of tree is selected. Trees that are identified as "not saleable" are tagged with a special black ribbon and are periodically removed from the field.
The current data for five trees that will be analyzed in the exercise are shown in the following table.
The "expected yearly demand" is an estimate of the demand over the next year for the tree. The "std dev" is the standard deviation, a measure of the error, that corresponds to the forecast. For-sale and in-field quantities are given, and finally the total number of trees planted on the farm. The demand forecast and quantities are updated on an ongoing basis as trees are sold and planted on the farm.
Assignment 1.Your first task is to evaluate the inventory "position" of each tree. The farm does not keep any backorder information, so the only data you have is "for-sale" and "in-field" quantities. Think about "for-sale" as on-hand trees, and "in-field" as on-order trees. Calculate page 401the inventory position using two measures: the actual number of trees and an estimate of the years-of-supply for each tree. The current year forecast can be used to estimate years-of-supply. Answer this question by creating two columns that capture this information.
2.Assume that it takes year to obtain the starter "twigs" and plant a batch of trees, and another 2 years to grow the trees. How many trees should management consider a minimum level (a reorder point) that would trigger starting the cycle to grow a type of tree? In answering this question, assume that management wants to have a 90 percent service probability while going through each planting cycle. Answer this question relative to the number of trees and years-of-supply for the trees.
3.Management does not use an economic criterion, like EOQ, to determine planting quantity. Rather, they have stated that they want to plant a minimum of a year's worth of high-volume and two years' worth of low volume trees at a time. The idea is to order the year's supply target plus an amount needed to make up the difference between the minimum and current inventory position. For those tree types that are below the minimum level (calculated in part 2), calculate a proposed planting quantity. Create an additional column in the table for the proposed planting quantity.
4.Suggest a process for how you think management should use the new ordering information you have created in the first three parts of this exercise. Issues related to how often this decision should be considered, and how the planting quantity might be adjusted, should be considered in your process. Also, what additional criteria should be considered in making these decisions.
Accounting Principles Part 3
ISBN: 978-1118306802
6th Canadian edition Volume 1
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Kinnear, Joan E. Barlow