Reference no: EM132430347

Question - LC Ltd is a distributor of semiconductor products. It purchases integrated circuit (IC) products from manufacturers at a wholesale cost of $200 and resells it to end customers. LC Ltd forecasts that demand of semiconductor products in 2019 is 600,000 units. Ordering costs are $600 per order and carrying costs are $40 per unit, including the opportunity cost of holding inventory.

Takashi Ltd is a manufacturer of handheld computers. It purchases materials from suppliers. The materials are stored in the warehouse in Kwun Tong. The production factory is located in Shenzhen. Training for workers is lacking, so they can only perform simple duties. The suppliers are relatively new in the market. The CFO fords it difficult to forecast the demands of the products. The handheld computers are similar. Takashi Ltd currently purchases a large volume of products in each order in order to minimize the number of purchase orders from various suppliers. The CEO wants to adopt just-in-time (JIT) production.

Required -

(a) For LC Ltd, compute the optimal order quantity using the EOQ model.

(b) For LC Ltd, determine the following:

(i) The number of order per year;

(ii) The annual relevant total cost of ordering and carrying inventory.

(c) For Takashi Ltd, discuss whether just-in-time (JIT) production is appropriate.