Question One Marks Golden Key Limited manufactures and markets automatic washing machines. Among the many hundreds of components which it purchases each year from external suppliers for assembling into the finished article are drive belts, of which it uses 40,000 units per annum. It is considering converting its purchasing, delivery and stock control of this item to a Just - in - time system. This will raise a number of orders placed but lower the administrative and other costs of placing and receiving orders. If successful, this will provide the model for switching most of its inwards suppliers on to this system. Details of actual and expected ordering and carrying costs are given in the table below: Ordering cost per order Purchase cost per unit Inventory holding cost Actual K100 K2.50 20% Proposed K25 K2.50 20% To implement the new arrangements will require one-off reorganization costs estimated at K4,000 which will be treated as a revenue for tax purposes. The rate of corporation tax is 33% and the company can obtain finance at 12%. The effective life span of the new system can be assumed to be eight years. You are required to: (a) Determine the effect of the new system on economic order quantity. [10] (b) Determine whether the system is worthwhile in financial terms. (c) Briefly explain the nature and objectives of JIT purchasing agreements concluded between components users and suppliers. [6] [Total: 20 marks]