A machine shop uses 2500 brackets during the course of a year, and this usage is
ID: 352825 • Letter: A
Question
A machine shop uses 2500 brackets during the course of a
year, and this usage is constant throughout the year. These
brackets are purchased from a supplier for OMR 15 each, and
the lead time is 2 days. The holding cost per bracket per year is
10%, the ordering cost is OMR 19 per order. There are 260
working days per year.
a) Determine the EOQ (item is a discrete unit).
b) What is the average inventory?
c) What is the time between orders?
d) What is the Reorder Point.
e) The delivery vehicle has a capacity for 200 brackets. By how
much should the ordering cost be reduced so that the
economic order quantity can be delivered in one vehicle?
Explanation / Answer
Annual demand, D = 2500
Lead time, L = 2 days
Cost per unit, C = 15
Holding cost, H = C*10% = 15*10% = 1.5 per year
Ordering cost, K = 19 per order
(a) EOQ = SQRT(2DK/H) = SQRT(2*2500*19/1.5) = 252 brackets (rounded off to whole number)
(b) Average inventory = Q/2 = 252/2 = 126 brackets
(c) Time between orders = (Q/D)*260 working days per year = (252/2500)*260 = 26.2 days
(d) Reorder point = (D/260)*L = (2500/260)*2 = 19 brackets (rounded off to whole number)
(e) Target EOQ = 200
Therefore, SQRT(2*D*K/H) = 200
SQRT(2*2500*K/1.5) = 200
K = 2002*1.5/(2*2500) = 12
Therefore, ordering cost must be reduced to OMR 12 such that EOQ can be delivered in one vehicle.
So ordering cost must be reduced by = 19-12 = OMR 7
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.