X sells 'mu-50' to its customers. It purchases mu-50 from Y @ 140 per unit. Y pays all freight to X. No incoming inspection is necessary because Y has a superb reputation for delivery of quality merchandise. Annual demand of X is 13,000 units. X requires 15% annual ROI. The purchase order lead time is 2 weeks. The purchase order is passed through EDI and it costs 2 per order. The relevant insurance, material handling etc. * 3.10 per unit per year. X has to decide whether or not to shift to JIT purchasing. Y agrees to deliver 100 units of mu-50-130 times per year (5 times every two weeks) instead of existing delivery system of 1,000 units→ 13 times a year with additional amount of * 0.02 per unit. X incurs no stock out under its current purchasing policy. It is estimated X incurs stock out cost on 50 units under a JIT purchasing policy. In the event of a stock out, X has to rush order which costs 4 per unit.
X sells 'mu-50' to its customers. It purchases mu-50 from Y @ 140 per unit. Y pays all freight to X. No incoming inspection is necessary because Y has a superb reputation for delivery of quality merchandise. Annual demand of X is 13,000 units. X requires 15% annual ROI. The purchase order lead time is 2 weeks. The purchase order is passed through EDI and it costs 2 per order. The relevant insurance, material handling etc. * 3.10 per unit per year. X has to decide whether or not to shift to JIT purchasing. Y agrees to deliver 100 units of mu-50-130 times per year (5 times every two weeks) instead of existing delivery system of 1,000 units→ 13 times a year with additional amount of * 0.02 per unit. X incurs no stock out under its current purchasing policy. It is estimated X incurs stock out cost on 50 units under a JIT purchasing policy. In the event of a stock out, X has to rush order which costs 4 per unit.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints
Section: Chapter Questions
Problem 2CE: Sterling Corporation has an EOQ of 5,000 units. The company uses an average of 500 units per day. An...
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