1. Economic Order Quantity (EOQ) a. The following information is provided you by
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Question
1. Economic Order Quantity (EOQ) a. The following information is provided you by the inventory manager for LockTite Inc. Units of inventory required for the year 20,000 Cost to place an order Cost to carry a unit in inventory Determine the economic order quantity (EOQ) for LockTite Inc. $60 $12 b. Busser's EOQ is 1,500 units. Busser's normal demand for the year is 54,000 units. Usually five days are needed from the time an order is placed until it arrives from the supplier. Assuming Busser operates 360 days a year, what is the reorder point? c. Expert Inc. has determined that their EOQ is 500 units. Normal demand is 3,125 units a year Given that the cost to place an order is $10 and the cost to carry a single unit in inventory is $.025 what are the total ordering and carrying costs for the year? 2. a. How is a reorder point different from an economic order quantity? b. How would a reorder point be used in conjunction with an EOQ?Explanation / Answer
ReqA: Annual demand (D) =20,000 units
Ordering cost (O) = $60 per orer
Carrying cost(I) =$ 12 per unit
EOQ = (2DO/I) 1/2 = ( 2*20000*60 / 12)1/2 = 447.21 units
ReqB.
Annual demand : 54000 units
EOQ =1500 units
Demand per day = 54000 / 360 = 150 units
Time gap between two orders= EOQ / demand per day = 1500 /150 = 10 days
Lead time = 5 days
Reorder point = demand per day ( time gap between orders- lead time ) = 150 ( 10-5) = 750 units
ReqC: Demand = 3125 units
EOQ = 500 units
Number of orders = demand / EOQ = 3125 /500 = 6.25 orders
ordering cost epr order = $ 10 per order
Total Ordering cost = number of orders * ordering ocst per order = 6.25*10 = $ 62.50
Carrying cost per unit = $ 0.25 per unit
Total carrying cost = Average inventory * carrying cost per unit = 500 /2 * 0.25 = $62.50
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