Question 1 (25 marks)

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)

2. Calculate:

1. total annual set up costs, and

(3 marks)

2. total annual carrying costs.

(3 marks)

3. 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.

2. the time it will take Babys R Us to meet this customers order.

(6 marks)

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

(3 marks)

5. 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)