Topic: Case Study: Sturdivant Sound Systems

Order Description

Sturdivant Sound Systems manufactures and sells stereo and CD sound systems in both console and component styles. All parts of the sound systems, with the exception of

speakers, are produced in the Rochester, New York, plant. Speakers used in the assembly of Sturdivant’s systems are purchased from Morris Electronics of Concord, New

Hampshire.
Jason Pierce, purchasing agent for Sturdivant Sound Sys- tems, submits a purchase requisition for the speakers once every four weeks. The company’s annual requirements

total 5,000 units (20 per working day), and the cost per unit is $60. (Sturdivant does not purchase in greater quantities because Morris Electronics, the supplier,

does not offer quantity dis- counts.) Rarely does a shortage of speakers occur because Morris promises delivery within 1 week following receipt of a purchase

requisition. (Total time between date of order and date of receipt is 10 days.)
Associated with the purchase of each shipment are pro- curement costs. These costs, which amount to $20 per order, include the costs of preparing the requisition,

inspecting and storing the delivered goods, updating inventory records, and issuing a voucher and a check for payment. In addition to procurement costs, Sturdivant

Sound Systems incurs inven- tory carrying costs, which include costs of insurance, storage, handling, taxes, and so on. These costs equal $6 per unit per year.
Beginning in August of this year, management of Sturdivant Sound Systems will embark on a companywide cost control program in an attempt to improve its profits. One of

the areas to be scrutinized closely for possible cost savings is inventory procurement.

Following questions need to be formatted into an essay

1. Compute the optimal order quantity.
2. Determine the appropriate ROP (in units).
3. Compute the cost savings that the company will real-
ize if it implements the optimal inventory procurement
decision.
4. Should procurement costs be considered a linear function
of the number of orders?