Chapter 20, Problem 20.32P

1.

To determine

Material Requirement Planning (MRP) System:

The system that produces the finished goods with the help of raw material and semi finished goods is known as the material requirement planning. It involve the planning and controlling of inventory in such a way that the production will optimally generate.

Economic Order Quantity (EOQ):

Economic order quantity is the quantity of order that is purchased from supplier at a time, the EOQ aim is to reduce the carrying and ordering cost of inventory. EOQ is also referred as the optimum level of lot size.

Just-in-Time (JIT) Inventory:

Just in time inventory approach means to purchase the inventory when it is needed. This approach does not consider the storage of inventory factor. Most of the companies use this approach to avoid the wastage arises due to extra inventory. When the need of inventory arises the purchase manager will purchase the inventory from supplier.

To compute: The actual cost of producing and carrying units in inventory using MRP system.

2.

To determine

The optimum batch size and number of batches also calculate the annual cost of producing and carrying if the company uses optimal batch size. Compare this cost with the cost calculated in part1.

3.

To determine

To compute: The actual cost of producing and carrying units in inventory using JIT system.

4.

To determine

To explain: The MRP system and JIT system and there advantages and disadvantages.