SPC buys polystyrene resin from a supplier in 1000-pound units, and each unit co

Question

SPC buys polystyrene resin from a supplier in 1000-pound units, and each unit cost $20.00, and the percent holding cost is 10%. The fixed shipping cost per order is $300.If we assume that 1000 pounds of resin yields 1000 pounds of clear plastic, what are the following values for clear plastic?

Find:

A. Cycle Inventory

B. Holding Cost

C. Flow Time

Data:

- 1000-pound units

- $20.00 Cost per Unit

- 10%: Holding cost per year

- $300 Shipping cost

- Annual Demand:

- Black Plastic: 23,967

- Clear Plastic: 29,760

Explanation / Answer

A. Cycle Inventory is given by

Economic Ordered Quantity/2=[sqrt(2*Demand*FixedCost/Holding Cost)]/2

Demand=29760 units, Fixed Cost= $300, Holding cost=10% of 20 per unit=$2

Cycle Inventory=0.5*sqrt(2*29760*300/2)=1494 units (approx.)

B. Holding Cost = $2 as calculated in last part

C. Flow Time= Avg Inventory/Avg Flow Rate=Avg Inventory/Demand=Cycle Inventory/Demand

Flow Time=1494/29760=0.0502 yrs=0.0502*365=18.32 days

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