Custom Computers, Inc. assembles custom home computer systems. The heat sinks ne

Question

Custom Computers, Inc. assembles custom home computer systems. The heat sinks needed are bought for $12 each and are ordered in quantities of 650 units. Annual demand is 5200 heat sinks, the annual inventory holding cost rate is $3 per unit, and the cost to place an order is estimated to be $50. Calculate the following: Calculate the following: (a) Average inventory level units (b) The number of orders placed per year orders (c) The total annual inventory holding cost $ (d) The total annual ordering cost $ (e) The total annual cost $ The new order quantity would be 1300 heat sinks. Recalculate Problem, parts (a) through (e), and compare results: An order quantity of 650 units yields total annual costs than an order quantity of 1300 units

Explanation / Answer

solution=

Annual demand (D) = 5200 units
Order quantity (Q) = 650 units
Holding cost rate per unit (H) = $3
Cost to place an order (S) = 50

a. Average inventory level = Q/2
Average inventory level = 650/2
Average inventory level = 325 Units

b. The number of orders placed per year
Total order placed in a year = D/Q
Total order placed in a year = 5200/650
Total order placed in a year = 8 orders per year

c. The total annual inventory holding cost
Total annual inventory holding cost = (Q/2)*H
Total annual inventory holding cost = (650/2)*$3
Total annual inventory holding cost = (325)*$3
Total annual inventory holding cost = $975

d. The total annual ordering cost
Total annual ordering cost = (D/Q)(S)
Total annual ordering cost = (5200/650)(50)
Total annual ordering cost = (8)($50)
Total annual ordering cost = $400

e. The total annual cost
Total annual cost = (annual inventory holding cost) + (Total annual ordering cost)
Total annual cost = $975 + $400
Total annual cost = $1375

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