Reference no: EM133006776

Question - Ferrer Ltd buys hats from a supplier in Sri Lanka and sells them on to retailers in Australia. Ferrer currently uses an EOQ model to determine the number of hats to send to order.

Annual demand for hats is approximately 26 400. The ordering cost is $125 per order and the annual carrying cost of a hat is $1.75.

Ferrer's accountant, Andrew Murray, recently attended a seminar on Just-in-Time (JIT) and is considering how the ideas of JIT differ from traditional techniques like EOQ and how they may help to manage inventory more efficiently.

Required -

A) Use the EOQ model to determine the optimal number of hats per order.

B) If it takes two weeks to receive an order, at what point should Ferrer reorder hats?

C) What are the total relevant ordering and carrying costs?

D) Ferrer has determined that demand may vary from the average by up to 30%. To handle the variation in demand, Ferrer has decided that it should maintain enough safety stock to cover any demand level. How much safety stock should the Brisbane warehouse hold? How will this affect the reorder point and reorder quantity?

E) Briefly outline the key features of Just-in-Time system.