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
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
icon
Related questions
icon
Concept explainers
Topic Video
Question
100%

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

Expert Solution
steps

Step by step

Solved in 6 steps

Blurred answer
Knowledge Booster
Inventory management
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, operations-management and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Practical Management Science
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Business in Action
Business in Action
Operations Management
ISBN:
9780135198100
Author:
BOVEE
Publisher:
PEARSON CO
Purchasing and Supply Chain Management
Purchasing and Supply Chain Management
Operations Management
ISBN:
9781285869681
Author:
Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:
Cengage Learning
Production and Operations Analysis, Seventh Editi…
Production and Operations Analysis, Seventh Editi…
Operations Management
ISBN:
9781478623069
Author:
Steven Nahmias, Tava Lennon Olsen
Publisher:
Waveland Press, Inc.