Exercise 13-5: Snoblo
Inputs Reguplo
Each of the other
models
Reguplo
Each of the other models
Anticipated demand 10,000 1,000 10,000 1,000
Standard deviation 1,000 700 1,000 700
Unit costs $100 $110 $90 $120
Sales price $200 $220 $200 $220
Disposal value $80 $80 $80 $80
Inventory holding costs
Cost of overstocking $20 $30 $10 $40
Expected profits $970,018 $81,421 $1,081,602 $66,689
Current Sourcing (one line)
Tailored Sourcing (two lines)
Snoblo, a manufacturer of snowblowers, sells four models. The base model, Reguplo, has demand during the season that is
normally distributed, with a mean of 10,000 and a standard deviation of 1,000. The three other models have additional
features, and each has demand that is normally distributed, with a mean of 1,000 and a standard deviation of 700. Currently,
all four models are manufactured on the same line at a cost of $100 for Reguplo and $110 for each of the other three models.
Reguplo sells for $200, whereas each of the other three models sells for $220. Any unsold blowers are sold at the end of the
season for $80. Snoblo is considering the use of tailored production by setting up two separate lines, one for Reguplo and one
for the other three. Given that no changeovers will be required on the Reguplo line, the production cost of Reguplo is expected
to decline to $90. The production cost of the other three products, however, will now increase to $120. Do you recommend
tailored production for Snoblo? How will tailored production affect production and profits? Ignore holding costs for the
snowblowers.
Exercise 13-5 Snoblo
Inputs Reguplo Each of the other models Reguplo Each of the other models
Anticipated demand 10,000 1,000 10,000 1,000
Standard deviation 1,000 700 1,000 700
Unit costs $100 $110 $90 $120
Sales price $200 $220 $200 $220
Disposal value $80 $80 $80 $80
Inventory holding costs
Salvage value $80 $80 $80 $80
Cost of understocking $100 $110 $110 $100
Cost of overstocking $20 $30 $10 $40
Outputs
Optimal cycle service level 0.8333 0.7857 0.9167 0.7143
Optimal lot size 10,967 1,554 11,383 1,396
Expected profits $970,018 $81,421 $1,081,602 $66,689
Total Profits $1,214,280 $1,281,670
Current Sourcing (one line)
Tailored Sourcing (two lines)
Snoblo, a manufacturer of snowblowers, sells four models. The base model, Reguplo, has demand during the season that is normally distributed, with a mean of
10,000 and a standard deviation of 1,000. The three other models have additional features, and each has demand that is normally distributed, with a mean of
1,000 and a standard deviation of 700. Currently, all four models are manufactured on the same line at a cost of $100 for Reguplo and $110 for each of the other
three models. Reguplo sells for $200, whereas each of the other three models sells for $220. Any unsold blowers are sold at the end of the season for $80.
Snoblo is considering the use of tailored production by setting up two separate lines, one for Reguplo and one for the other three. Given that no changeovers will
be required on the Reguplo line, the production cost of Reguplo is expected to decline to $90. The production cost of the other three products, however, will now
increase to $120. Do you recommend tailored production for Snoblo? How will tailored production affect production and profits? Ignore holding costs for the
snowblowers.