Answered: Techno Gadgets Corp. produces J-Pods,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Part 1

Requirement 1. Using the MRP system, what is the annual cost of producing and carrying J-Pods in inventory? (Assume that, on average, half of the units produced in a month are in inventory.)

Begin by determining the formula, then calculate the annual cost of producing and carrying J-Pods in inventory, using an

MRP

system. (Round your answer to the nearest whole dollar.)

						Cost of producing
Total variable production cost	+	Total setup cost	+	Carrying cost	=	and carrying
$1,089,000	+	$211,200	+	$13,200	=	$1,313,400

Part 2

Requirement 2. A new manager at

Techno Gadgets

has suggested that the company use the EOQ model to determine the optimal batch size to produce. (To use the EOQ model,

Techno Gadgets

needs to treat the setup cost in the same way it would treat ordering cost in a traditional EOQ model.) Determine the optimal batch size and number of batches. Round up the number of batches to the nearest whole number. What would be the annual cost of producing and carrying J-Pods in inventory if it uses the optimal batch size? Compare this cost to the cost calculated in requirement 1. Comment briefly.

Begin by selecting the formula used to calculate

EOQ.

(D=Demand

in units for one year,

P=Ordering

cost per purchase order,

C=Carrying

cost of one unit in stock,

Q=Any

order quantity.)

ModifyingAbove EOQ equals StartRoot StartFraction 2 DP Over Upper C EndFraction EndRoot With Subscript EOQ=2DPC

Part 3

(Round your final answer to the nearest whole number.)

The optimal batch size is

6,600

J-pods.

Part 4

Using the MRP system, what is the annual cost of producing and carrying J-Pods in inventory? (Assume that, on average, half of the units produced in a month are in inventory.)
2.	A new manager at Techno Gadgets has suggested that the company use the EOQ model to determine the optimal batch size to produce. (To use the EOQ model, Techno Gadgets needs to treat the setup cost in the same way it would treat ordering cost in a traditional EOQ model.) Determine the optimal batch size and number of batches. Round up the number of batches to the nearest whole number. What would be the annual cost of producing and carrying J-Pods in inventory if it uses the optimal batch size? Compare this cost to the cost calculated in requirement 1. Comment briefly.
3.	Techno Gadgets is also considering switching from an MRP system to a JIT system. This will result in producing J-Pods in batch sizes of 330 J-Pods and will reduce obsolescence, improve quality, and result in a higher selling price. Techno Gadgets will reduce setup time and setup cost. The new setup cost will be $230 per setup. What is the annual cost of producing and carrying J-Pods in inventory under the JIT system?
4.	Compare the models analyzed in the previous parts of the problem. What are the advantages and disadvantages of each?

(Round up the number of batches to the nearest whole number.)

The optimal number of batches that would be produced is

batches.

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