Question: Part B KLY has forecasted demand for its product LY' to be 400,000 units for the following year. The existing policy of the firm is

Part B KLY has forecasted demand for its product

Part B KLY has forecasted demand for its product LY' to be 400,000 units for the following year. The existing policy of the firm is to order 20,000 units at a time and the cost per order is Rs1,600. The holding cost per unit is Rs20 per unit per year. The firm is now considering to use the economic order quantity model (EOQ) to determine order size of the product LY'. A buffer stock of 4,000 units of product 'LY' will be maintained by the firm, irrespective of whether order are made according to existing policy or using the EOQ model. Required (a) Calculate the inventory costs of KLY Ltd based on its existing ordering policy. [2 marks] (b) Calculate the inventory costs of KLY Ltd using the economic order quantity and advise the firm whether the economic order quantity is beneficial to the firm. [4 marks] (c) KLY Ltd is considering to adopt the Just-In-Time' approach to manage its inventories. Explain fully the conditions that are important for a firm to be able to operate with a 'Just-In-Time' approach. [6 marks] Page 5 of 9

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