ABC Ltd has forecasted demand for its product ‘AB’ to be 400,000 units for the following year. The existing policy of the firm is to order 20000 units at a time and the cost per order is Rs. 1600. The holding cost per unit is Rs 20 per unit per year. The firm is now considering to use the economic order quantity model (EOQ) to determine order size of the product ‘AB’. A buffer stock of 4000 units of product ‘AB’ will be maintained by the firm, irrespective of whether order are made according to existing policy or using the EOQ model.   Calculate the inventory costs of ABC Ltd based on its existing ordering policy? Calculate the inventory costs of ABC Ltd using the EOQ and advise the firm whether the EOQ is beneficial to the firm? ABC is considering to adopt the ‘Just-in-time’ approach to manage its inventories. Explain fully the conditions that are important for a firm to be able to operate with ‘ Just in time’ approach

Practical Management Science
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ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
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ABC Ltd has forecasted demand for its product ‘AB’ to be 400,000 units for the following year. The existing policy of the firm is to order 20000 units at a time and the cost per order is Rs. 1600. The holding cost per unit is Rs 20 per unit per year. The firm is now considering to use the economic order quantity model (EOQ) to determine order size of the product ‘AB’. A buffer stock of 4000 units of product ‘AB’ will be maintained by the firm, irrespective of whether order are made according to existing policy or using the EOQ model.

 

Calculate the inventory costs of ABC Ltd based on its existing ordering policy? Calculate the inventory costs of ABC Ltd using the EOQ and advise the firm whether the EOQ is beneficial to the firm? ABC is considering to adopt the ‘Just-in-time’ approach to manage its inventories. Explain fully the conditions that are important for a firm to be able to operate with ‘ Just in time’ approach

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