Q1.

Use exhibit 4 and the 2012 annual demand to find out EOQ and ROP for the 5
SKUs scheduled to be produced in the last week of June.

Product (12 oz)

3JS Marran Kerry DOM AAA
(Strawberry (Raspberry (Peach Jam) (Blueberry (Apple/Mint
Jam) Jelly) Jam) Jelly)
Sales/week 74 58 38 23 16
Setup cost 63.7 63.7 63.7 63.7 63.7
Annual demand 3869 3006 1970 1211 832
Carrying cost 0.09 0.09 0.09 0.09 0.09
Unit cost 28.34 30.52 26.86 29.01 26.32
EOQ 440 373 322 243 212
ROP 223 173 114 70 48
% increase in 28% 29% 31% 35% 33%
sales
% increase in 14% 13% 15% 17% 16%
EOQ

Three Jays Co. used one-month-old data to estimate demand for the
following month. By adding risk and safety factor and by using 2012s annual
demand, changes in EOQ and ROP are represented as follows:

Old EOQ New EOQ Old ROP New ROP

Strawberry Jam 387 440 173 223
Raspberry Jelly 329 373 135 173
Peach Jam 280 322 86 114
Blueberry Jam 208 243 51 70
Apple/Mint Jelly 183 212 36 48

This shows that the corporation needs to acquire the necessary amount of data
to forecast demand and to function at an optimal level. This will also lead to the
management of inventory in an efficient manner.
In fact, the entire scheduling was flawed. The new amounts will help the
company to operate at the optimal level while reducing overall costs.

1
Q2. What changes in cost would you recommend in Exhibit 2?

Setup cost is considered a cost that is incurred uniformly for a single batch. I
would say that the labor costs should not be a part of setup cost because the
salary was supposed to be given at regular intervals.

Carrying costs includes storage costs, maintenance (particularly in regard to

perishable items), insurance and other less tangible expenses, such as
opportunity costs and losses due to theft. This is sort of the cost that you bear
for overstocking. Therefore, shrinking cost, storage cost, obsolescence cost and
holding costs should be added in it. Capital cost shouldnt be a part of carrying
costs, because those are your investments in assets.

Q3. Compare the original costs with recommended costs.

New setup cost = 3*12.50*1 =$ 37.50. (Since three part time workers
supported the operations and each was paid $12.50).
New carrying cost = 3% + 20 = 23%
New unit cost would be =$25.79 for Strawberry jam, $27.97 for Raspberry
jelly, $24.31 for Peach jam, $26.46 for Blueberry jam, and $23.77 for
Apple/Mint jelly.

Old cost New cost

Carrying cost 9% 23%
Setup cost 63.70 37.50

Determining the correct costs properly will determine EOQ properly and will
help the company to perform better while allowing them to better handle their
inventory.

Q4. Which inventory model is most optimum?

EOQ model was not a marvel for their operations as in EOQ, unit cost is
fixed with constant demand. Three Jays should use Periods Review Model or the
ABC Model, since their demand is not constant. PRM would include regular checks
of inventory level and forecasting is done based on this data gathered.
Therefore, it was the need of the hour that they substituted existing EOQ to a
more efficient and reliable inventory model to ensure that they operated at the
optimal level and such that the inventory was managed properly to ensure reduced
costs.

2
Q5. What recommendations should Brodie present to Jana?

The company should reevaluate their cost calculation method were not
properly constructed and had ample room for errors while estimating carrying,
setup and unit cost.
Using EOQ as inventory system is not appropriate, because their demand is
not constant and should be changed to Periodic Review Model or ABC
Model. Using this model, managers will be able to check inventory on a
regular basis.
Since the demand is not constant, the date for previous month should be used
to forecast the demand for coming month as the current system was leading to
further problems in terms of inventory management.
Scheduling is not properly developed and it is crucial to rectify for
enhancement of the efficiency of the production process.
By calculating cost properly and using data of 2012, we have following EOQ
and ROP:

Product (12 oz) 3JS Marran Kerry DOM AAA

(Strawberry (Raspberry (Peach Jam) (Blueberry (Apple/Mint
Jam) Jelly) Jam) Jelly)
Sales/ week 74 58 38 23 16
Setup cost 37.5 37.5 37.5 37.5 37.5
Annual demand 3869 3006 1970 1211 832
Carrying cost 0.23 0.23 0.23 0.23 0.23
Unit cost 25.79 27.97 24.31 26.46 23.77
EOQ 221 187 163 122 107
ROP (3 weeks) 223 173 114 70 48
ROP (4 weeks) 297 231 151 93 64