Calculate the current order level economic order quantity

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Reference no: EM133334530

Question a. Kane Ltd manufactures weighing machines that sell on the market at a rate of 120 units per month. Each machine uses a mechanical part that costs €200 each from the Moroccan supplier. The weighing machine retails on the market at €1,100. Each time an order is placed with the supplier, it costs €400, regardless of the order size. The cost to store a mechanical part for one year is 10% of the purchase price of the part. The supplier has offered a discount of 0.5% if Kane Ltd orders 720 units each time an order is placed. At the moment Kane Ltd orders the Economic Order Quantity (rounded).

Reguired: (i) Calculate the current order level - the Economic Order Quantity (rounded).

(ii) Calculate the total inventory costs (including the purchase costs) for the year of the current order level - the Economic Order Quantity.

(iii) Calculate the total inventory costs (including the purchase costs) for the year if the new quantity of 720 units is ordered, to avail of the 0.5% discount.

(iv) Advise Kane Ltd as to whether to purchase the current Economic Order Quantity or 720 units, based on cost.

Question b. Describe an example of a product that may be suited to a JIT system, and a product that may not always be suitable for a JIT system.

Reference no: EM133334530

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