Question:
(a) Evaluate the role of management accountants and their value as part of an integrated system.
(b) TNG SDN BHD expects annual demand for product X to be 255,380 units. Product X has a selling price of RM19 per unit and is purchased for RM11 per unit from a supplier, MKR SDN BHD. TNG places an order for 50,000 units of product X at regular intervals throughout the year. Because the demand for product X is to some degree uncertain, TNG maintains a safety (buffer) inventory of product X which is sufficient to meet demand for 28 working days. The cost of placing an order is RM25 and the storage cost for Product X is 10 cents per unit per year.
TNG normally pays trade suppliers after 60 days but MKR has offered a discount of 1% for cash settlement within 20 days.
TNG SDN BHD has a short-term cost of debt of 8% and uses a working year consisting of 365 days.
REQUIRED
(i) Critically discuss the limitations of the Economic Order Quantity model as a way of managing inventory.
(ii) Discuss the advantages and disadvantages of using just-in-time inventory management methods.
(iii) Critically discuss whether the discount offered by the supplier is financially acceptable to TNG SDN BHD.