The factory needs 1,000,000 light bulbs per day, you have to average no more tha
ID: 2415533 • Letter: T
Question
The factory needs 1,000,000 light bulbs per day, you have to average no more than $250k in fresh light bulbs in inventory on site.Your supplier is in China. Your firm "PTP" uses factory gate pricing. It is a 2 day trip from the factory to the port Shensen ( the shipper only ships in groups of 5 containers of production per ship, 3 weeks on route to Seattle and 7 days by rail to your Muncie IN factory. At a value of 50 cents a piece and holding costs of 8% per year. What is the total value of the inventory, What are the average annual holding costs of the pipeline inventory? What do you need to do ( number of containers on site ) to achieve the $250k in in-plant inventory value. Assume the containers hold 1,000,000 light bulbs a piece. Please show the work on how the answers are determined.
Explanation / Answer
total value of inventory = inventory cost
= 1000000 * 5 containers * $0.5
= $2500000
average annual holding costs = average inventory * holding costs
= 1000000*.5* *8%
=$40000
in order to achieve $250000 in plant inventory there must be 500000 light bulbs in inventory on sight so only half container must be available on sight
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