Broadbent Industries Carries a Part That Is Popular in the Manufacture

question 18

Essay

Broadbent Industries carries a part that is popular in the manufacture of automatic sprayers. Demand for this part is 4,000 units per year; order costs amount to $30 per order, and holding costs total $1.50 per unit.
The company, which currently places four orders per year with its suppliers, is considering the implementation of an economic order quantity (EOQ) model to better manage its inventories. Preliminary EOQ calculations revealed an optimal order quantity of 400 units and total annual inventory costs of $600.
Required:
A. In comparison with its current policy, how much will Broadbent save by adopting the EOQ model?
B. Briefly explain the philosophical difference between the EOQ model and the just-in-time model. Which of the two models will likely result in lower holding costs for the firm? Why?

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Definitions:

Illusory

Pertaining to something that seems real or possible but proves to be false or unattainable.

Conditional Promise

A pledge to do or not do something that is contingent upon a certain event occurring or a condition being met.

Pre-Existing Duty

An obligation that a party is already legally obliged to perform, which is not considered sufficient to serve as consideration for a new contract.

Legal Sufficiency

The adequacy of evidence in meeting legal standards to support a finding or conclusion in a legal proceeding.