Exam 20: Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints

The cost of acquiring inventory includes

The objectives of JIT are achieved by

External constraints are imposed on a firm from within and internal constraints are imposed electronically.

Figure 20 -2 Walrus Company has the following information available concerning one of its inventory items: -Refer to Figure 20-2. The reorder point for the inventory item is

Answer the following questions pertaining to just-in-time inventory management: a. What are key elements of the JIT philosophy? b. What elements of the JIT approach contribute to reducing materials inventory? c. Why do proponents of JIT believe inventory is an enemy?

The economic order quantity is the order quantity that results in

Hasselblad Company manufactures two different products, X and Y. The company has 100 pounds of materials and 300 direct labor hours available for production. The time requirements and contribution margins per unit are as follows: What is the equation for the constraint on direct labor?

Grapevine Incorporated produces two different barrels used in wine making. (X and Y) The company has three processes, cutting, forming, and curing. In cutting, the wood is cut to size and prepared for forming. In forming, the wood is bent to shape and connected together to form the barrel. In curing, the seams are finished and the oak is left to process. In cutting, setup time is 1/2 hour. The other two processes do not have any setup time. The demand for Component X is 90 units per day and the demand for Component Y is 240 units per day. The minutes required per unit for each component are as follows: The company operates one 8-hour shift. The cutting process employs 10 workers. Two hours of their time is used for setup. The forming process is the most labor intensive and has 15 workers. The curing department is not labor intensive-the only significant unit­ level variable costs are materials and power. The department only employs 6 associates. For component X, the variable cost is $40 per unit and for Component Y, it is $30 per unit. The selling price per barrel is $95 for Component X and $80 for Component Y. Required: a. Calculate the estimated daily potential profit. b. Calculate the resources available in minutes for each area. c. Calculate the resources demanded in minutes for each area and identify any bottlenecks. d. What is the contribution margin per unit of bottleneck resource and what does that imply?

Commonwealth Dry Cleaners has 400 hours a week available to use in dry cleaning or laundry. Four thousand inches of hanging space is available. The average item that is dry cleaned takes six inches of hanging space, whereas laundry items take up only three inches of hanging space. The contribution margin for laundry items averages $3.50; dry cleaned items average $6.50. Fifty items can be washed per hour, whereas only twenty can be dry cleaned. Required: a. Determine the objective function. Is it a minimization or maximization function? b. Set up the constraint equations.

Harrowing Company has the following information: Annual demand 3,500 units Order size 500 units Ordering cost per order $400 Carrying costs per unit for one year $40 Lead time (maximum 20 days) 10 days Maximum daily use 25 units Work year 250 days Required: a. Determine the economic order quantity for Harrowing. b. What is the annual savings to Harrowing Company if it was to change from an order size of 1,000 to the economic order quantity? c. What is the reorder point? d. What is the safety stock needed to prevent stockouts?

A marker or card that specifies the quantity that the preceding process should manufacture is a

Using the graphic approach to linear programming, the solution is usually

Knoxville Manufacturing Company produces X and Y with contribution margins per unit of $10 and $90, respectively. Only 200 labor hours and 400 machine hours are available for production. Time requirements to produce one unit of X and Y are as follows: What is the constraint on machine hours for Knoxville Manufacturing Company?

The ordering of small, frequent orders

Effective inventory management conserves investment capital and facilitates response to customer demands.

Knoxville Manufacturing Company produces X and Y with contribution margins per unit of $10 and $90, respectively. Only 200 labor hours and 400 machine hours are available for production. Time requirements to produce one unit of X and Y are as follows: What is the constraint on labor hours for Knoxville Manufacturing Company?

The is the amount of inventory needed to keep the constrained resource busy for a specified time interval.

Which of the following equations determines the total annual ordering costs?

One of the traditional reasons for holding inventory is to minimize total carrying costs and setup costs. The JIT solution is to

Following is information pertaining to material that is used in the assembly of motorcycles: a. Calculate total annual carrying costs for an order quantity of 200 units per order. b. Calculate total annual ordering costs for an order quantity of 200 units per order. c. Determine the optimal order size.