Question

Babies R Us Pty Ltd, a large export company produces the annual demand of 100,000 baby cots per year.

• In order to produce the cots, special equipment must be set up. Babies R Us takes two hours to set up the special equipment.   The cost per set up is $400.

• The annual cost of holding a cot in inventory is $5.

• The production rate is 50 cots per hour.

• The workers work in a ten-hour shift per day.

Required:

1.     Compute the optimal batch size to produce the cots using the Economic Order    Quantity (EOQ) model.                                                                                  

(4 marks)

1.   Calculate:

1. total annual set up costs, and                                                                  

(3 marks)

1. total annual carrying costs.                                                                           

(3 marks)

1. An overseas company requires 10,000 cots. Babies R Us has only 2,000 cots in stock. Calculate:

a.     the time it takes to produce a production batch of cots using the EOQ method.

1.    the time it will take Baby’s R Us to meet this customer’s order.  

(6 marks)

1. List 2 assumptions of the Economic order quantity (EOQ model)

(3 marks)

1. Describe what is Just in time (JIT) purchasing. In your answer, discuss at least 2 features of JIT purchasing that enable the company to:

1. satisfy customer demands for quick delivery; and

2. reduce total inventory costs.

(6 marks)