OE 631 Fall Semester 2017 Final a 1. Alled Chemical Ratoe Rouge Plant laboratory

Question

OE 631 Fall Semester 2017 Final a 1. Alled Chemical Ratoe Rouge Plant laboratory (ACBR) parchses sample kits froe B&A; Lab Supply. ACBR expects to use 40,000 sample kits next year. The cost to onder and have the kits delivered is 5800 per order. ACBR is currently ondering based on the BOO model and the aneual carrying cost is $1.90 per kit for the E00 ordered amoone However, it is expected that carryingcosts will increase by 5%foreach 10,000kis above the curment EOO oeder size because of added storage and insrance costs The supplier is offering the following discoust pricing sohedulc. Detecmise the recommended order size for the laboratory based relative to inventory management-(25 Points Value). Quantity of Sample Kits the total ael co 0,000-19,999 2.90 Process Controls Incorporated (PCInufactures a subassembly 7 days per week to s wouild be $34 ose for the 7-week peridbeing evate method should be uned (NOTE that cost hus already been determined for which method should be used and why you 00 35004000 $000 3500 No of

Explanation / Answer

Annual demand, D = 40,000

Ordering cost, S = 800 per order

Carrying cost per unit, H = 1.9

EOQ = (2DS/H) = (2*40000*800/1.9) = 5804

For each discount slab, determine the total annual inventory related cost, comprising Ordering cost (OC), inventory Holding cost (HC), Purchase cost (PC)

Note that Inventory holding cost per unit (H) increases 5% for every 10,000 kits added to order quantity, starting with 20,000 kits, which is 14196 more than EOQ.

We see that the total annual inventory related cost is lowest for order size of 10,000 kits.

Therefore, recommended order size = 10,000 kits

Lot size Policy: EOQ 10,000 kits 20,000 kits 30,000 kits 40,000 kits D = 40,000 40,000 40,000 40,000 40,000 S = 800 800 800 800 800 H = 1.90 1.90 2.00 2.09 2.20 P = 3.40 3.20 3.00 2.80 2.60 Q = 5,804 10,000 20,000 30,000 40,000 OC =S*D/Q 5,514 3,200 1,600 1,067 800 HC =H*Q/2 5,514 9,500 19,950 31,421 43,990 PC =D*P 136,000 128,000 120,000 112,000 104,000 TC =OC+HC+PC 147,027 140,700 141,550 144,488 148,790

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