Jays Corporation

The following are some of the questions that you need to address:

1. Using the data in case Exhibit 4 and the 2012 annual demand, calculate the EOQ and ROP quantities for the five SKUs scheduled to be produced in the last week of June.  How do these amounts compare with those calculated in 2011?  Compare the increases in EOQs with the increases in annual demand.

2. Brodie is uncertain if the costs presented in case Exhibit 2 are appropriate for determining the EOQs.  What changes would you recommend, and why?  Should the cost of the three idle part-time workers be included when the production line is down?  Using the 2012 annual demand, and your recommendations, recalculate the EOQs for the five SKUS.

3. Compare your results with those obtained using the data in case Exhibit 2.  What do you attribute the differences to?  After speaking to Jake and Josh, Brodie is now not sure if the EOQ model is the most appropriate for the current production process.  Evaluate the scheduling method that Jake and Josh are using.  Why are they not following the established system?

4. Compare the established EOQ/ROP procedure (described in case Exhibit 2) with the one that Jake and Josh are using.  Which system do you prefer?  What improvements do you recommend?

5. What recommendations should Brodie present to Jana Fremont at his next meeting with her?

Question 1:

The Economic Order Quantity (EOQ) and Reorder Point Quantity are arrived at by using the following formulas.

EOQ =                               2SD

                                            iC

Whereby;

 EOQ represent the annual Demand of the inventory by an entity

S represents the setup costs incurred in bringing the inventory into saleable condition.

D is Demand for the year

C represents unit cos

i stands for Carrying cost percentage.

On the other side, ROP is obtained by using the formula illustrated below:

              ROP =    3 x D

                              52

Using the five SKUS 2012 annual demand data the Company EOQ and ROP will be as follows..

NOTE:

1.     The following figures in the EOQ and ROP column have been arrived at by using the above two formulas

2.     The weekly demand is arrived at by dividing the monthly demand by 4 to obtain the weekly demand in the last week of June 2012.

When the data obtained from this calculation is compared with the one of 2011, it comes out clearly that the annual demand has been increasing. This because of the demand for the product in the market is increasing, and also the company is avoiding to create the shortage of its products in the market (Sukhia, Khan, & Bano, 2014).

Question 2:

The costs associated with EOQ are based both on the variable costs and the fixed costs (Sulak, Ero?lu, Bayhan, & Avci, 2015). Variable costs differ with the level of production, and thus the value of EOQ should be obtained by putting into consideration all the inputs which actively participated in the production. Therefore, in this case, the costs attributable to the three works should not be included in total costs. This leads to a reduction of the total costs incurred by the three workers from the total cost as follows.

63.70 – (1.29 x 3)

= 59.80.

Using this new cost the EOQ and ROP of the year 2012 will be recalculated as;