Provide correct answers to each part. 36627.32 28 Exercise A manager receives a
ID: 426054 • Letter: P
Question
Provide correct answers to each part.
36627.32 28 Exercise A manager receives a forecast for next year. Demand is projected to be 6 the year and 900 units for the second half. The monthly holding cost 600 units for the first half of is $2 per unit, and it costs aun estimated 355 to process an order. Assume 150 working days in the first and second half of the year 1. Assuming that monthly demand will be level during each of the six-month periods covered by the forecast (e.g., 100 per month for each of the first six months), determine an order size that w minimize the sum of ordering and carrying costs for each of the six-month periods. 2. Wh y is it important to be able to assume that demand will be level during each six-month period? 3. How many order orders would the manager place in a year? 4. What are the order intervals in the first and second half of the year?Explanation / Answer
Answer to question 1 :
Cumulative demand during first six months = D1 = 600
Cumulative demand during 2nd six months = D2 = 900
Ordering cost = Co = $55 per order
Six monthly unit holding cost = Ch = $ 2 / month x 6 months = $ 12
Order size that will minimize ordering cost plus holding / carrying cost for first six months ( EOQ1) = square root ( 2 x Co x D1 / Ch)
= Square root ( 2 x 55 x 600 / 12 )
= 74.16 ( 74 rounded to nearest whole number )
Order size that will minimize ordering cost plus holding / carrying cost for next six months ( EOQ2 ) = Square root ( 2 x 55 x 900 / 12 )
= 90.82 ( 91 rounded to nearest whole number )
Answer to question 2 :
It is important to assume that demand will be level during each of six months period. If demand fluctuates there will be corresponding standard deviation of average demand . To take care of the standard deviation of demand , a certain amount of safety stock will need to be ordered in addition to normal economic order quantity resulting in higher gross ordering quantity including safety tock and therefore higher cost in terms of inventory holding cost .
Answer to question 3 :
Number of orders manager will place during first six months
= Demand during first six months / EOQ1
= 600 / 74
= 8.10
Number of orders manager will place during next six months
= Demand during next 6 months / EOQ2
= 900 /91
= 9.89
Number of orders manager will place in a year
= 8.10 + 9.89
= 17.99 ( 18 rounded to nearest whole number )
NUMBE ROF ORDERS MANAGER WILL PLACE IN A YEAR = 18
Answer to question 4 :
Effective number of days in each of the six months = 150
Order interval during first half of the year
= EOQ1/Six monthly demandx 150
=74/600x 150
= 18.5 days
Order interval during 2nd half of the year
= 91/900 x 150
= 15.16 days
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.