Advanced Manufacturing Corp. (AMC) wants to be a JIT manufacturing location. Presently it uses EQP and MRP for inventory orders for product A. Under current policy, it orders one time a week for a total of 52 times a year. Under JIT policy, it will order three times a week for a total of 150 times a year.

AMC wants to look at the benefits and costs with implementing a JIT purchasing environment. Using the provided data in the Excel Spreadsheet, answer the following questions.

Requirements:

Calculate AMC's Relevant Costs of Current Purchasing and JIT Purchasing for Product A

Provide management insight into the conclusions

Advanced Manufacturing Corp. (AMC) wants to be a JIT manufacturing location. Presently it uses EQP and MRP for inventory orders for product A.

Under current policy, it orders one time a week for a total of 52 times a year. Under JIT policy, it will order three times a week for a total of 150 times a year.

AMC wants to look at the benefits and costs with implementing a JIT purchasing environment. Using the provided data in the Excel Spreadsheet,

answer the following questions.

Required:

1). Calculate AMC's Relevant Costs of Current Purchasing and JIT Purchasing for Product A.

2). Provide management insight into the conclusions.

Current purchasing EOQ and MRP

JIT Purchasing Practice

Advanced Manufacturing Corp. (AMC) wants to be a JIT manufacturing location. Presently it uses EQP and MRP for inventory orders for product A.

Under current policy, it orders one time a week for a total of 52 times a year. Under JIT policy, it will order three times a week for a total of 150 times a year.

AMC wants to look at the benefits and costs with implementing a JIT purchasing environment. Using the provided data in the Excel Spreadsheet,

answer the following questions.

Required:

1). Calculate AMC's Relevant Costs of Current Purchasing and JIT Purchasing for Product A.

2). Provide management insight into the conclusions.

Description of operation

Current purchasing EOQ and MRP

JIT Purchasing Practice

Deliveries

5,000

units purchased

52

times per year

1733

units purchased

150

times per year

Required Rate of Return on investment

18%

18%

Purchasing Unit Cost

$ 9.00

per unit

$ 9.00

per unit

Ordering costs

$ 20.00

per order

$ 20.00

per order

Opportunity costs

$ 1.35

per unit of average inventory

$ 1.35

per unit of average inventory

Relevant Carrying cost

$ 3.30

per unit of average inventory

$ 3.00

per unit of average inventory

Customer return Costs

$ 10.00

for shipping and processing

$ 10.00

for shipping and processing

Stockout Costs

no stockout costs

Additional

$ 4.00

per order

1		Current Purchasing Policy	Quantity per year	Total Costs		JIT Purchasing Policy		Quantity per year	Total Costs
Purchasing costs			260,000	$ 2,340,000				$ 259,950	2,339,550
Ordering costs			$ 52.00	1,040.00				150	3,000.00
Opportunity costs
Carrying costs
Customer Return Costs
Stock Out Costs
Total annual relevant costs
Annual Difference
2. Management Insight