12.9 Southeastern Bell stocks a certain switch connector at its central warehous
ID: 2688744 • Letter: 1
Question
12.9 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
a.
EOQ = (2DS / H)
where D = annual demand, H = annual unit holding cost, S = ordering cost
EOQ = (2x15,000x75 / 25) = 300 units
b.
Annual holding cost = (Q/2)H = (300/2)x25 = $3,750
c.
Annual ordering cost = (D/Q)S = (15,000/300)x75 = $3,750
d.
ROP = (LT / CT)xQ for LT <= CT
where LT = lead time, CT = length of order cycle
CT = (Q/D)x300days = (300/15,000)x300 = 6 days
ROP = (2/6)x300 = 100 units
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