Sandy’s Cabinet Company uses MRP to schedule its production. Due to the current
ID: 348755 • Letter: S
Question
Sandy’s Cabinet Company uses MRP to schedule its production. Due to the current recession and the need to cut costs, Sandy has targeted the inventory investment area for cost reduction. However, the company does not want to reduce its customer service level in the process. Demand and inventory data for a standard two-drawer file cabinet are given in the following table. Complete an MRP matrix for the cabinet using (a) no lot sizing, (b) minimum of 200, and (c) multiples of 175 lot sizing. Which lot-sizing rule do you recommend?
Ordering cost = $100 per order Holding cost = $1 per cabinet per week Lead time = 1 period Beginning inventory = 150
PERIOD 1 2 3 4 5 Demand 145 165 155 135 170
Explanation / Answer
a- MRP matrix when there is no lot sizing
Period 1= 160 in 1 order, cost= 100+160*1= $260
Period 2= 155 in 1 order, cost= 100+155*1= $255
Period 3= 135 in 1 order, cost= 100+135*1= $235
Period 4= 170 in 1 order, cost= 100+170*1= $270
Period 5= 145 in 1 order, cost= 100+145*1= $245
Total cost=$255 +$260+$235+$270+$245= $1265, closing inventory= 145
b- Period 1= 200 in 1 order, cost= 100+205*1= $305
Period 2= 200 in 1 order, cost= 100+235*1= $335
Period 3= 200 in 1 order, cost= 100+280*1= $380
Period 4= 200 in 1 order, cost= 100+345*1= $445
Period 5=no order, cost= 175*1= $175
Total cost= $305+$335+$380+$445+$175= $1640, Closing inventory= 175
c-
Period 1= 175 in 1 order, cost= 100+180*1= $280
Period 2= 175 in 1 order, cost= 100+190*1= $290
Period 3= 175 in 1 order, cost= 100+210*1= $310
Period 4= 175 in 1 order, cost= 100+250*1= $350
Period 5=no order, cost=80*1= $80
Total cost= $280+$290+$310+$350+$80= $1310, Closing inventory= 80
No lot sizing should be recommended because it has lowest cost.
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