Question

Value Gadgets Corp. produces​ J-Pods, music players that can download thousands of songs. Value Gadgets forecasts that demand in 2017 will be 19,500 ​J-Pods. The variable production cost of each​ J-Pod is $50. In its MRP ​system, due to the large $22,750 cost per​ setup, Value Gadgets plans to produce​ J-Pods once a month in batches of 1,625 each. The carrying cost of a unit in inventory is $21 per year.

Question:

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.)
2.	A new manager at Value Gadgets has suggested that the company use the EOQ model to determine the optimal batch size to produce.​ (To use the EOQ​ model, Value 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.	Value Gadgets is also considering switching from an MRP system to a JIT system. This will result in producing​ J-Pods in batch sizes of 500 ​J-Pods and will reduce​ obsolescence, improve​quality, and result in a higher selling price. Value Gadgets will reduce setup time and setup cost. The new setup cost will be $400 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?

Answer 1

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