1.

Smith Products Corporation

a. Maximize 5X + 4Y

b. Labor hours: 2X + 3Y ≤ 400

Machine hours: 4X + 2Y ≤ 600

c. Labor hours: 400/2 = 200

Machine hours: 600/4 = 150

d. Product X = 125 units & Product Y = 50 units

2.

(A) Just-in-time (JIT) aims to minimize the setup costs by driving them to zero. In a JIT
system, setup and ordering costs are not taken as a given and are worked upon to become
insignificant. This leads to the reduction of inventories to very low levels, which is
essential to minimize carrying costs. Therefore, the JIT approach strives to achieve zero
inventories to reduce the overall costs of inventory management.

(B) Just-in-time (JIT) helps to solve the issue of meeting delivery dates by reducing lead times
significantly. By decreasing lead times, a company can improve its ability to fulfill delivery
requests on time and promptly respond to the ever-changing demands of the market, which
in turn enhances its competitiveness. JIT achieves this by employing various techniques,
such as reducing setup times, improving quality, and implementing cellular manufacturing
to minimize lead times.

(C) JIT overcomes these problems by prioritizing total quality control, preventive maintenance,
and building strong supplier relationships.

(D) Reducing the number of defective parts lowers the need for maintaining inventories that
rely on unreliable processes.

(E) Traditionally, companies hold inventories to benefit from quantity discounts and safeguard
against possible price hikes of the purchased items. The goal is to minimize inventory
costs. JIT's approach accomplishes the same objective without the need for inventory. The
JIT strategy involves negotiating long-term agreements with a small number of selected
suppliers located close to the production facility and encouraging greater supplier
participation.

(F) The JIT manufacturing company is willing to sacrifice current sales to ensure future sales
by providing higher quality, response time, and lower operating costs.
3.

a. The JIT philosophy aims to reduce waste, improve efficiency, increase productivity,
streamline production, lower costs, and enhance quality.

b. The Just-in-Time (JIT) approach employs several strategies to minimize materials

inventory. These include building long-term relationships with a select group of vendors,
choosing vendors based on service quality, material quality, and pricing, creating a system
where production employees can directly order raw materials needed for current
production from approved vendors, and accepting vendor deliveries directly to the shop
floor.

c. Proponents of JIT believe that inventory is an enemy because it causes the incurring of
carrying and handling costs, increases production time, and hides quality problems.

4. Evans Company

a. EOQ = √(2 x 4,000 x ₱500 / ₱50) = 282.84 units

b. Order size (1,000 units)

[₱500 x (4,000/1,000)] + [₱50 x (1,000/2)] = ₱27,000

EOQ (282.84 units)

[₱500 x (4,000/282.84)] + [₱50 x (282.84/2)] = 14,142.14

Annual Savings = 12,857.86

c. Units per day = (4,000/250) = 16

Reorder point = (16 units per day x 10 days) = 160 units

d. Maximum daily use 25 units

Lead time (maximum days) 20 days
Total 500 units
Reorder point 160 units
Safety stock 340 units