Is it possible to achieve zero inventories? Why or why not?
Inventory refers to a firm's ready-to-sell items, as well as the materials utilized to manufacture goods.
Inventory is the recording of goods, basic components, as well as raw materials that a corporation consumes as well as distributes. Inventory pertains to all of the things, commodities, commerce, as well as materials held by a company to resell in the marketplace for revenue
The concept of zero inventories is connected to the concept of just-in-time production. The main purpose of this method is to decrease stock management expenses by achieving a zero inventory level. This strategy, however, is not practically practicable due to the following reasons:
As a result, zero inventory may be defined as the concept. Firms can decrease their stocks to a certain minimal level, however, zero stocks are impossible to accomplish.
One of your Taiwanese suppliers has bid on a new line of molded plastic parts that are currently being assembled at your plant. The supplier has bid $0.10 per part, given a forecast you provided of 200,000 parts in year 1; 300,000 in year 2; and 500,000 in year 3. Shipping and handling of parts from the supplier’s factory are estimated at $0.01 per unit. Additional inventory handling charges should amount to $0.005 per unit. Finally, administrative costs are estimated at $20 per month. Although your plant can continue producing the part, the plant would need to invest in another molding machine, which would cost $10,000. Direct materials can be purchased for $0.05 per unit. Direct labor is estimated at $0.03 per unit plus a 50 percent surcharge for benefits; indirect labor is estimated at $0.011 per unit plus 50 percent benefits. Up-front engineering and design costs will amount to $30,000. Finally, management has insisted that overhead be allocated if the parts are made in-house at a rate of 100 percent of direct labor cost. The firm uses a cost of capital of 15 percent per year. What should you do, continue to produce in-house, or accept the bid from your Taiwanese supplier?
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