Vacino Ltd is examining its operations and is worried about the high inventory costs that it currently incurs. It purchases an annual amount of 400,000 units of RNAmeds, each of which costs $150. The cost of holding a unit of RNAmeds is $12 per year. The cost of ordering is $200 per order. The company does not expect to hold any safety stock. Calculate the total inventory cost (Cost of Purchase, Ordering, Holding) if Vacino Ltd decides to adopt the Economic Order Quantity system. Round the EOQ result to a whole number. [5 marks] 

b) Continuing from (a), assume that the supplier of RNAmeds is now offering a bulk purchase discount of 5% for orders of 10,000 or more. However, this would require Vacino Ltd to expand the warehouse and the cost of holding a unit of RNAmeds will increase to $15 per year. Using relevant calculations, determine if Vacino Ltd should take the bulk discount offer, or remain with the EOQ system. [5 marks]

c) Vacino Ltd is also a distributor for medical devices components. Often, such customers will urgently need the components for their faulty devices. Vacino is wondering if a just-in-time system can help the company. The company is in an important industry and Vacino tries to offer the best service for all its products. Critically discuss the advantages and disadvantages of a just-in-time system and whether it is appropriate for Vacino Ltd. [6 marks]

d) Vacino Ltd is also exploring its credit system with the hospitals and clinics. Critically discuss the advantages and disadvantages of giving a short credit period (e.g. 10 days credit) instead of a longer credit period (e.g. 60 days credit) to the customers.

Answer rating: 100% (QA)

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