Joe Henry\'s machine shop uses 2500 brackets during the course of a year. these
ID: 411700 • Letter: J
Question
Joe Henry's machine shop uses 2500 brackets during the course of a year. these brackets are purchased from a supplier 90 miles away. The following information is known about the brackets:
Annual Demand: 2500
Holding Cost per bracket per year: $1.40
Order cost per order: $19.75
Lead Time: 2 days
Working days per year: 250
What is the EOQ? ____ units (round your response to two decimal places).
What is the average inventory if the EOQ is used? _____ units units (round your response to two decimal places).
What would be the annual inventory holding cost? $ _______ (round your response to two decimal places).
c) Given the EOQ, how many orders will be made annually? _____orders (round your response to two decimal places).
What would be the annual order cost? $$________ (round your response to two decimal places).
d. Given the EOQ, what is the total annual cost of managing (ordering and holding) the inventory? $______
(round your response to two decimal places).
e) What is the time between orders?_______ days. (round your response to two decimal places).
f) What is the reorder point (ROP)?______ units (round your response to two decimal places).
(round your response to two decimal places).
Explanation / Answer
To be calculated:
a) EOQ
b) Average inventory if the EOQ is used
c) Annual inventory holding cost
d) Number of annual orders
e) Annual order cost
f) Total annual cost of managing (ordering and holding) the inventory
g) Time between orders
h) Reorder point (ROP)
Given Values:
Annual demand, D = 2500 brackets
Holding Cost per bracket per year, H = $1.40
Cost per order, C = $19.75
Lead Time = 2 days
Working days per year = 250
Solution:
a) EOQ is calculated as:
EOQ = 2 x C x D / H
EOQ = 2 x 19.75 x 2500 / 1.40
EOQ = 70536
EOQ = 265.59 units
b) Average inventory if the EOQ is used is calculated as:
Average inventory = EOQ/2
Average inventory = 265.59/2
Average inventory = 132.80 units
c) Annual inventory holding cost is calculated as:
Annual inventory holding cost = Average inventory * Holding cost
Annual inventory holding cost = 132.8 x 1.40
Annual inventory holding cost = $185.92
d) Number of annual orders is calculated as:
Number of orders = Annual Demand / Working Days in a year
Number of orders = 2500 / 250
Number of orders = 10
e) Annual order cost is calculated as:
Annual order cost = (D/EOQ)*C
Annual order cost = (2500 / 265.59) x 19.75
Annual order cost = $185.91
f) Total annual cost of managing (ordering and holding) the inventory is calculated as:
Annual cost of managing the inventory = EOQ x H
Annual cost of managing the inventory = 265.59 x 1.40
Annual cost of managing the inventory = $371.83
g) Time between orders is calculated as:
Time between orders = Total working days / Number of orders
Time between orders = 250 / 10
Time between orders = 25 days
h) Reorder point (ROP) is calculated as:
ROP = Lead time * Daily Demand
ROP = Lead time * (Annual Demand / Number of working days)
ROP = 2 x (2500 / 250)
ROP = 2 x 10
ROP = 20 units
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