Bateman Company produces helmets for drivers of motorcycles. Helmets are produce

Question

Bateman Company produces helmets for drivers of motorcycles. Helmets are produced in batches according to model and size. Although the setup and production time vary for each model, the smallest lead time is six days. The most popular model, Model HA2, takes two days for setup, and the production rate is 975 units per day. The expected annual demand for the model is 46,800 units. Demand for the model, however, can reach 58,500 units. The cost of carrying one HA2 helmet is $3 per unit. The setup cost is $7,800. Bateman chooses its batch size based on the economic order quantity criterion. Expected annual demand is used to compute the EOQ Recently, Bateman has encountered some stiff competition-especially from foreign sources. Some of the foreign competitors have been able to produce and deliver the helmets to retailers in half the time it takes Bateman to produce. For example, a large retailer recently requested a delivery of 15,600 Model HA2 helmets with the stipulation that the helmets be delivered within seven working days. Bateman had 3,900 units of HA2 in stock. Bateman informed the potential customer that it could deliver 3,900 units immediately and the other 11,700 units in about 14 working days-with the possibility of interim partial orders being delivered. The customer declined the offer indicating that the total order had to be delivered within seven working days so that its stores could take advantage of some special local conditions. The customer expressed regret and indicated that it would accept the order from another competitor who could satisfy the time requirements Required 1. Calculate the optimal batch size for Model HA2 using the EOQ model. Round your answer to the nearest whole number if rounding is required 15600 Was Bateman's response to the customer right? Would it take the time indicated to produce the number of units wanted by the customer? units Yes 2. Upon learning of the lost order, the marketing manager grumbled about Bateman's inventory policy, "We lost the order because we didn't have sufficient inventory. We need to carry more units in inventory to deal with unexpected orders like these." Do you agree or disagree?

Explanation / Answer

2.ANS: Calculation of additional inventory required:

According to the given question the smallest lead time is six days.

So the Bateman Company has to keep inventory for 7 days.

Unexpected orders = 15,600 units

Existing inventory of Bateman Company is = 975 unit per day x 7 = 6825 units

Therefore required additional inventory = 15,600 units - 6825 units = 8775 units.

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