Inventory Management & Planning

Vertous Ltd supplies and fits electronic products to all emergency vehicles. The following questions will involve several items the company sells.

Question 1: Dashcam Systems

Vertous Ltd purchase all its dashcam systems from external international supplier. Its annual requirement is 65,500 dashcam systems and the minimum order size is 400 dashcam systems. Ordering, packing, shipping and insurance costs are $2,560 per order. Vertous Ltd needs to hold 30 days' supply on-hand to avoid out-of-stock. Annual carrying costs, which include allocated warehouse overhead and the financial expense of holding inventory is $779. Delivery time, after order placement, is usually around 25 days.

Using the information above calculate the EOQ, Safety Stock and Reorder Point for Vertous Ltd. Remember to round up to the next whole number for any units stated.

Calculate EOQ and state the orders placed each year:

Safety Stock:

Reorder Point:

Question 2: Make or Buy Analysis

Vertous Ltd produces their own light bar systems and ram bars that are installed on Emergency Vehicles. Below you are given the following costs involved in the manufacture and installation of each light bar and Ram Bar. The company is deciding whether to buy the lightbars pre-made from a USA Supplier rather than manufacturing it.

Using the table below prepare the Make or Buy Analysis using the following assumptions:

1. Only the Lightbar is going to be outsourced, the Ram bar is still being produced. The Ram bar still uses 40% of the overhead costs.
2. The special Equipment is being used in multiple product lines for electronics for emergency vehicles.
3. The $1,912 is based on the installation on 1,500 emergency vehicles.
4. The outside supplier has offered to provide 1,500 lightbar systems for a cost of $1,250 per system.

Product Costing: Light Bar System and Ram Bar - Making vs Buy
	Cost per Unit	Cost of 1,500
	Make	Buy
Outside Purchase Price	$1,250
Direct Materials (Ram Bar)	$360
Direct Materials (Light Bar System)	$550
Direct Labour (Ram Bar)	$250
Direct Labour (Light Bar System)	$650
Variable Overhead	$7
Installer's Salary	$20
Depreciation of Special Equipment	$50
Supervisor's Salary	$5
General Factory Overhead	$20
Unit Product Cost	$1,912
Total Avoidable Cost:
Cost of Buying the Part:
Should Vertous Ltd make or buy the Lightbars