# Case Analysis: Blanchard Importing and Distributing

**Topics:**Economic order quantity, Inventory, Cost accounting

**Pages:**6 (1410 words)

**Published:**August 15, 2015

Case Analysis: Blanchard Importing and Distributing Co. Inc. (HBS Case 9 - 673 - 033) Submitted by: Tushar Kothavale (130) NMIMS, FT MBA 2009-2011

1) Correct the Economic Order Quantity (EOQ) and Reorder point (ROP) quantities for each of the five items mentioned in the case. We first predict the annual demand for the year 1972 based on trend for 4 months of 1972 based on corresponding months of 1971. Calculations for Annual demand (R):

The assumption made here is that the same trend for sales as that for the four months of 1972 would be followed for the rest of the months of the 1972. Sales prediction for annual demand for year 1972

Feb

Mar

Apr

May

Total Sales

Percentage Change over 1971

Annual Demand

Vodka

1971

128

136

233

219

716

2455

1972

210

303

275

463

1251

74.72

4289

Gin

1971

51

52

74

157

334

1421

1972

166

142

133

213

654

95.81

2782

Scotch

1971

79

82

151

66

378

800

1972

82

68

66

38

254

-32.80

538

Whiskey

1971

163

180

198

183

724

3096

1972

177

163

162

256

758

4.70

3241

Rum

1971

10

34

44

26

114

449

1972

11

28

61

55

155

35.96

610

Calculations for Setup cost (S):

Size changeover cost = (cost of resetting all machinery for change in bottle size/ avg. no. of different items of given size processed between size changeover)

= 23000 / (52X7X10)

= $6.3186 per changeover

Label changeover cost = Labour cost incurred while label changeover process

= (23000X0.5X8*)/(52X7) + 5X2.5X0.5

= $10.2 per labour changeover

*Assumption each working day is of 8 hrs.

Order Processing cost = 18000/ 350

= $51.43 per order.

All figures in $

Blending Setup Cost

Size changeover cost

Labour changeover cost

Order processing cost

Total setup cost (S)

Blanchard's 80 proof Vodka

1.15

6.32

10.2

51.43

69.10

Blanchard's 80 proof Gin

1.08

6.32

10.2

51.43

69.03

MacCoy & MacCoy 86 proof Scotch

3.24

6.32

10.2

51.43

71.19

Triple 7 86 proof Blended Whiskey

2.62

6.32

10.2

51.43

70.57

Blanchard's 80 proof Ron Cores Rum

2.33

6.32

10.2

51.43

70.28

Calculations for Unit cost (C):

Fixed overhead allocation = total company fixed overhead for the year/ no. of cases sold per yr. We calculate total fixed overhead as per data given for 1969. Total fixed overhead = 1.31X(2455+1421+800+3096+449)

= $ 10769.51

Since fixed overhead remains constant from year to year

Now for year 1972,

Fixed overhead allocation = 10769.51 / 11461

= $ 0.9396

All figures in $

Blanchard's 80

Blanchard's 80

MacCoy & MacCoy

Triple 7 86

Blanchard's 80

Proof Vodka

Proof Gin

86 Proof Scotch

Proof Blended Whiskey

Proof Ron Cores Rum

Materials—beverage

0.93

1.08

4.46

2.52

2.74

Materials—packaging

1.27

1.27

1.27

1.27

1.27

Total Material cost

2.2

2.35

5.73

3.79

4.01

Bottling labour

0.1

0.1

0.1

0.1

0.1

Fixed overhead allocation

0.94

0.94

0.94

0.94

0.94

Variable overhead

0.5

0.5

0.5

0.5

0.5

Customs duty

1.55

Federal distilled spirits tax

25.2

25.2

27.09

27.09

25.2

Federal rectification tax

0.76

Total Unit Cost (C )

31.14

31.44

41.64

36.97

34.76

EOQ & ROP Calculations:

Product

Annual Demand (R )

Setup cost (S )

Unit Cost (C )

Carrying cost percentage (K )

New EOQ

New ROP

EOQ as per 1969

ROP as per 1969

Blanchard's 80 proof Vodka

4289

69.10

31.14

11.5

407

289

327

165

Blanchard's 80 proof Gin

2782

69.03

31.44

11.5

326

187

248

96

MacCoy & MacCoy 86 proof Scotch

538

71.19

41.64

11.5

126

36

170

54

Triple 7 86 proof Blended Whiskey

3241

70.57

36.97

11.5

328

218

346

208

Blanchard's 80 proof Ron Cores Rum

610

70.28

34.76

11.5

146...

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