Question

Techno GadgetsTechno Gadgets

Corp. produces​ J-Pods, music players that can download thousands of songs.

Techno GadgetsTechno Gadgets

forecasts that demand in

2014

will be

52,800

​J-Pods. The variable production cost of each​ J-Pod is

$ 47.

In its MRP​ system, due to the large

$121,000

cost per​ setup,

Techno GadgetsTechno Gadgets

plans to produce​ J-Pods once a month in batches of

4,400

each. The carrying cost of a unit in inventory is

$ 22

per year.

2.	A new manager at Techno GadgetsTechno Gadgets has suggested that the company use the EOQ model to determine the optimal batch size to produce.​ (To use the EOQ​ model, Techno GadgetsTechno Gadgets needs to treat the setup cost in the same way it would treat ordering cost in a traditional EOQ​ model.) Determine the optimal batch size and number of batches. Round up the number of batches to the nearest whole number. What would be the annual cost of producing and carrying​ J-Pods in inventory if it uses the optimal batch​ size? Compare this cost to the cost calculated in requirement 1. Comment briefly.
3.	Techno GadgetsTechno Gadgets is also considering switching from an MRP system to a JIT system. This will result in producing​ J-Pods in batch sizes of 220 ​J-Pods and will reduce​ obsolescence, improve​quality, and result in a higher selling price. The frequency of production batches will force Techno GadgetsTechno Gadgets to reduce setup time and will result in a reduction in setup cost. The new setup cost will be $ 120 per setup. What is the annual cost of producing and carrying​ J-Pods in inventory under the JIT​ system?
4.	Compare the models analyzed in the previous parts of the problem. What are the advantages and disadvantages of​ each?

Answer 1