Case Analysis: Blanchard Importing and Distributing

Topics: Economic order quantity, Inventory, Cost accounting Pages: 6 (1410 words) Published: August 15, 2015
Managing Business Operations
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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