Question 1

Mombong LLC manufactures electronic components for televisions. The expected annual demand is 40,000 units per year. The order cost is $150 per batch and the annual holding cost per unit is $0.80.

Required:

(a) Explain the purpose of the Economic Order Quantity, and the underlying assumptions. (4 marks)

(b) Using the above given information, compute:

i) the economic order quantity. (2 marks)

ii) the annual cost of ordering and holding (5 marks)

Management is concerned with rising inventory costs and discussed with the accountant on how upgrading of the inventory management system to the JIT system will help. Required:

(c) Describe how the Just-In-Time inventory (JIT) system works. (6 marks)

(d) Describe the reasons for not implementing the Just-In-Time inventory system.(3 marks)