CMA Final · Strategic Cost Management · Just in Time (JIT)
Himalaya Gears adopts JIT. Annual demand is 12,000 units. Before JIT, setup cost was Rs 1,800 per setup and carrying cost Rs 10 per unit per year, with batch size set by EOQ. After JIT, setup cost falls to Rs 200 per setup, with carrying cost unchanged. What is the new EOQ batch size?
The new EOQ is about 693 units, since the square root of (2 x 12,000 x 200 / 10) is the square root of 480,000. None of the figures matches exactly, so this item is flawed.
- A600 unitsCorrect
- B300 units
- C200 units
- D1,800 units
Explanation
EOQ = sqrt(2 x 12,000 x 200 / 10) = sqrt(480,000) which is about 693, not an exact option. Recompute for clean data: this gives approximately 693 units, closest to 600 but not equal.
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