Answer to Question #187289 in Economics for Tanmayee

Question

Enfield has its vehicle assembly plant in Tiruvottiyur, Chennai and its engine assembly plant in Oragadam near Chennai. Engines are transported between the two plants using trucks, with each trip costing Rs. 2000. vehicle plant assembles and sells 250 motorcycles every day. Each engine costs Rs. 25000, and MCL incurs a holding cost of 24 % per year.

1. What is the cycle inventory of engines at MCL? If demand, and thus production, for their motorcycle grows, but all other input data remain unchanged, would you expect cycle inventory of engines at MCL to increase or decrease?

Answer 1

An inventory cycle, also called inventory turnover, or turns, is a measure of how many times during a given period a company sells an volume of products equal to the volume of supplies it keeps on hand.

Inventory cycle = 1/0.24 = 4.17 units.

If demand, and thus production, for their motorcycle grows, but all other input data remain unchanged, then we would expect cycle inventory of engines at MCL to decrease.