DSC13152.21 Dr. M. Sedaghat Test#2 Oct.2017 A timber company in the southeast U.
ID: 368990 • Letter: D
Question
DSC13152.21 Dr. M. Sedaghat Test#2 Oct.2017 A timber company in the southeast U.S. is evaluating its inventory policy regarding timber needed for its saw mill. They have collected the following information regarding one particular type of timber it needs: Annual demand 72,000 D Carrying cost $12/unit/year Order cost-$50 s Supply rate (p) 400 Usage rate (d)- 1s0 a. What is their Optimum production quantity? EGAP 2 cI-c15400) b. What is their total annual Inventory cost at the POQ? c. What is the average inventory level at POQ?Explanation / Answer
a- Optimum production quantity Q={(2DS)/H(1-(d/p))} =2*72,000*50/{12(1-(150/400))}=7,200,000/7.5=960,000=980
b- Annual inventory cost= Annual demand*price+average inventory*holding cost per unit+orders placed per year*order cost
=72000+306*12+72000/980*50= 72,000+3675+3673=79,348
c-Average inventory=Q(1 – d/p)/2= {980(1-150/400)}/2=980*0.625/2=306 units
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