TechWorks Corp. produces J-Pods, music players that can download thousands of songs. TechWorks forecasts that demand in 2014 will be 43,200 J-Pods. The variable production cost of each J-Pod is $52. In its MRP system, due
to the large $91,200 cost per setup, TechWorks plans to produce J-Pods once a month in batches of 3,600 each. The carrying cost of a unit in inventory is $19 per year.
Read the requirements
Requirement 1. Using the MRP system, what is the annual cost of producing and carrying J-Pods in inventory? (Assume that, on average, half of the units produced in a month are in inventory.)
Begin by determining the formula, then calculate the annual cost of producing and carrying J-Pods in inventory, using an MRP system.
Cost of producing
1. Using the MRF“ system= what is the annual cost of producing and canying J—Pods in inventory“?
[Assume that, on average, half of the units produced in a month are in inventory.) A new manager at TechWorlcs has suggested that the company use the ECG model to determine
the optimal batch size to produce. [To use the EDQ model, TechWorks needs to treat the setup
cost in the same way it would treat ordering cost in a traditional EDD model.) Determine the
optimal batch size and number of batches. Round up the number of batches to the nearest whole
number. lii’ir’hat would be the annual cost of producing and canying .l—Pods in inventory if it uses the
optimal batch size? Compare this cost to the cost calculated in requirement 1. Comment brieﬂy. Ted’IWorks is also considering switching from an MRP system to a JIT system. This will result in
producing J-Pods in batch sizes of Bill] J-Pods and will reduce obsolescence, improve quality, and
result in a higher selling price. The frequency of production batches will force TechWorks to reduce
setup time and will result in a reduction in setup cost. The new setup cost will be $2M] per setup.
What is the annual cost of producing and carrying J—Pods in inventory under the JIT system? Compare the models analyzed in the previous parts oi the problem. 1lr’lrl’hat are the advantages and
disadvantages of each?