26) The demand for a particular part called SKU 005 is 1,500 units a year. The c

Question

26) The demand for a particular part called SKU 005 is 1,500 units a year. The cost of one SKU 005 is $50.00. It costs $60.00 to place an order for SKU 005, and the user of SKU 005 has a per year inventory carrying cost of 25% of unit cost. Assume 250 working days in the year where SKU 005 is used.
a. What is the combined annual holding and ordering cost of an order size of 200 units for SKU 005?
b. How many of SKU 005 should be ordered, to minimize combined ordering and holding costs?
c. The vendor who sells SKU 005 has just offered a 5% discount for orders of 500 or more. Now how many should be ordered?
d. Once the purchasing manager for SKU 005 places an order, the vendor requires 5 working days to deliver that order. What should be the purchasing manager’s reorder point?

Explanation / Answer

D=1500

Co=60

Cc=25%*50=12.5

a) TC=D*Co/Q+Q*Cc/2 +PD=1500*60/200 +200*12.5/2 +1500*50=76700

b)EOQ= Sqrt(2*D*Co/Cc)= Sqrt(2*1500*60/12.5)=120

c)500 units should be ordered

At EOQ of 120 units Total Cost=1500*60/120 +120*12.5/2 +1500*50=76500

d) Reorder point=Daily Demand* Lead Time=(1500/250)*5=30

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