3. The Thrifty Computer Company is trying to decide which of several lot-sizing

Question

3. The Thrifty Computer Company is trying to decide which of several lot-sizing procedures to use for its MRP system. The following information pertains to one of the typical component parts: Setup cost- $120/order Inventory holding cost-$1.25/unit/week. Current inventory balance = 0 units. Text Week 1 2 345 678 Demand Forecast 65 10X358X110 2585 X Apply the EOQ, (only integer multiples of the EOQ can be ordered), POQ, and PPB lot-sizing procedures and show the total cost resulting from each procedure. Calculate inventory carrying cost based on the average inventory on hand at the end of each period. Assume orders are received into the beginning inventory.

Explanation / Answer

ECQ is economic order quality .

Setting cost = $120/ Order

Inventory cost = $ 1.25 / unit / week

Average demand = ( 65 + 10 + 35 + 8 + 110 + 25 + 85 + 1 ) / 8

                           = 42

ECQ = sq root ( 2 * D* S )/ H

        = sq root ( 2* 42 * 120 ) / 1.25

        = 89.799

POQ = EOQ / D

        = 89.799 / 42

        = 2.138

Total cost = 120 + 42 * 1.25

               = $172.5

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