Question

Semco is a supplier of automotive and airline seat sensor. You know the ones that give you the alarms and warnings that you haven’t buckled your seat belt, or that measure the weight of the seat occupant such that airbags are properly deployed. Last year Semco sold 400,000 units of sensors for a total of $5,000,000; it paid $1,250,000 components and materials necessary to assemble into sensors. It also had transportation costs of $250,000, and warehousing costs of $300,000. Including overhead, marketing and sales, plus assembly of the component parts cost Semco $1,250,000. During this same time period, Semco had cash holding of $50,000, account receivables of $450,000, plus an inventory worth $500,000. Including its building equipment and capital goods Semco has $2,000,000. It has current liabilities of $950,000 and long-term debt of $1,550,000. Give a tax rate of 40% and an inventory carrying cost rate is 25%, Creat an income statement and balance sheet.

You are the supply chain manager for Semco Inc. You are evaluating whether to commit to a Just-in-time process. The just-in-time system increases your transportation cost by $200,000, but will cut your warehousing cost in half and reduce your inventory by 50%. Given this information and the following financials statements, calculate the appropriate transportation, warehousing, inventory carrying cost, taxes, net income for the Just-in-time system. Compare the Base line against the Just-in-time system using profit margin, ROA, % transportation of sales, %-warehousing of sales, %-inventory of sales, financial leverage and SPM.

Although you have ironed out the kinks in you upstream system using just-in-time. The companies that you supply have tighten their requirements. Before, they were satisfied with your 92% on-time delivery performance. Now they are requiring a 95% on-time delivery performance level. To make sure that you hit the 95% target, you have set your internal on-time delivery rate target at 97%. It will cost Semco $50,000 to meet the 95% target and $100,000 to reach the 97% target. If the lost sales rate for an on-time delivery failure is 20% and a rehandling charge of $5 per rectified and refused order, and a 10% invoice penalty for every order not delivered on-time, was it a good decision for Semco to set a 97% target.

Write a 1-page memo summarizing your analysis and findings, and attach an appendix containing your financial statements and calculations.

Answer 1

Income statement of Semco ltd. (Last Year)

Expense	Amount(in $)	Income	Amount(in $)
Production component and Material	1,250,000	Sales	5.000,000
Transportation cost	250,000
Warehouse cost	300,000
Overhead, Marketing and Sale	1,250,000
Inventory Carrying Cost (25%)	125,000
Income (Balancing Figure)	1,825,000
	5,000,000		5,000,000

Balance Sheet (Last Year)

Liabilities	Amount(in $)	Assets	Amount (in $)
Current Liabilities	950,000	Cash	50,000
Long Term Debts	1,550,000	Receivables	450,000
Capital (Balancing Fig,)	500,000	Inventory	500,000
		Building & Capital Goods	2,000,000
	3,000,000		3,000,000

Income statement of Semco ltd. As per Just-in-Time Method

Expense	Amount(in $)	Income	Amount(in $)
Production component and Material	1,250,000	Sales	5.000,000
Transportation cost	450,000
Warehouse cost	150,000
Overhead, Marketing and Sale	1,250,000
Inventory Carrying Cost (25%)	62,500
Income (Balancing Figure)	1,837,500
	5,000,000		5,000,000

Just in Time Method Is beneficial, as it is increasing the profit before tax by $12,500.

Comparitive Analysis

Particulars	Normal	Just in Time
Return on Assets	1.825/3= 0.608	1.8375/3= 0.613
%Transportation of Sale	0.25/5= 0.05	0.45/5= 0.09
% Warehousing of Sale	0.3/5= 0.06	0.15/5= 0.03
% inventory of sale	0.5/5= 0.1	0.25/5= 0.05