Blanchard Importing and Distribution Co., Inc. Case Solution
Cost of capital
It has been assumed that the cost of borrowing would be 5% from the credit union, which could allow to increase the funds in order to invest in inventory merchandise. However, it was estimated that the total return on investment would be reinvested in the stock, therefore it has been determined that the 15% of rate on investment would be adjusted to the cost of capital by adding the carrying cost. Thus, the total cost capital is 17.5% and is assumed to be fixed for the production and investment activities.
In this case, some cost would be excluded due to not performing in the re-production phase, therefore the selected unit costs for resetting the inventory stock would be direct material, direct labour, federal taxes on replenishment, customers duty due to withdrawal and the variable overhead. It is determined in the new projected made it evident that Vodka will generate the total unit cost of 2.80 per unit of production.
The cost is directly associated with the cost of capital for each unit cost, however the projected results show that Vodka would consider the total holding cost of 0.49 and is expected to grow at the same level in the coming period.
Â Â Comparison of new Economic order quantity (EOQ) with the old and projected
EOQ is the point where the company can reduce the amount of additional costs associated with the production activities. However, the net results are quite different from the past performance because in the old EOQ, the quantity showed alarge amountand was expected to reduce the cost with this value.
While the other projected EOQ required the minimum value as compared to the old and new projected EOQ,therefore, it was concluded that the best suitable option for the company is to go after the second option because it would reduce more cost of activities as compared to other two. Thus, excluding the reorder point, projected EOQ would be acceptable for re-productionof inventory.
Reorder Point (ROP)
After the critical analysis, it is concluded that the old reorder point of Vodka would be acceptable for the Blanchard because it shows less amount of replenishing the inventory, which will decrease the amount of total cost associated with it. However, the second option is to acquire the new projected ROP, as it was not good for the company as compared to the first option. However, sudden changes in the cost of capital and return on investment could change the scenario to new projected scenario.
The inventory assessment shows that how much the amount would decrease or increase by comparing the EOQ with the reorder point. In the results, the two previous figures are compared with the new projected results as well as this indicates the level of changes in inventory under the comparison.
Therefore, it has been analysed that the total difference in old figure is quite favourable as compared to the new projected results. On the other hand, the new projected results outflank the option two because it would be more efficient in the reorder and reduce more most as compared to the counterpart.
After the detailed analysis of the three scenarios, it has been determined that certain changes need to address with additional recommendations given below:
First of all, Blanchard should decrease the additional operating cost associated with the skilled labour and reorder of inventory. It should overcome the over employed criteria by decreasing the level employees under the phase of re-production, as well as it should also control the additional productions in the weekdays and reduce the level of per week days to run the operations in order to reduce the overall cost………………
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