3. Southeastern Bell stocks a certain switch connector at its central warehouse

Question

3. Southeastern Bell stocks a certain switch connector at its central warehouse for supplying field service offices. The yearly demand for these connectors is 15,000 units. Southeastern estimates its annual holding cost for this item to be $25 per unit. The cost to place and process an order from the supplier is $75. The company operates 300 days per year, and the lead time to receive an order from the supplier is 2 working days. a) Find the economic order quantity. b) Find the annual holding costs. c) Find the annual ordering costs. d) What is the reorder point

Explanation / Answer

Answer

1.Economic Order Quantity = SQ RT ( 2 * (Annual Demand * order Cost /Holding cost))

= Sqrt(2*15000*75/25) = 300 Units

2.Annual Holding Cost = Average Inventory * Holding Cost per unit per annum = (300/2)*25= 3750$

3.Annual Order cost= No of order * cost per order = (15000/300)*75 = 3750 $

4. Reorder point = EOQ + Lead time requirement = 300+(15000/300)*2 = 400 Units

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