Sweet Tunes Ltd. makes musical instruments. One of their products is a ukulele that has an annual demand of 3,000 units. The setup cost for each production batch is $900; it costs $15 to carry an ukulele in inventory for one year.

Required

1. What is the total annual relevant batch set up and carrying cost if the company uses the economic order quantity? Assume that setup costs are the same as ordering costs.

2. The company is switching to a just-in-time system. The average order size is 200 ukuleles. What is the total annual relevant batch set up and caring cost? Compare the Enterprise Resource Planning EOQ model with the JIT model. What are the advantages and disadvantages of each?