Joe? Henry\'s machine shop uses 2,550 brackets during the course of a year. Thes
ID: 430454 • Letter: J
Question
Joe? Henry's machine shop uses 2,550 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:
a.) Given the above information, what would be the economic order quantity (EOQ)?
_____ Units (Round response to 2 decimal places)
b.) Given the EOQ, what would be the average inventory?
___ Units (Round response to 2 decimal places)
What would be the annual inventory holding cost?
$___ (Round response to 2 decimal places)
c.) Given the EOQ, how many orders would be made each year?
___ Units (Round response to 2 decimal places)
What would be the annual order cost?
$ ___(Round response to 2 decimal places)
d.) Given the EOQ, what is the total annual cost of managing (ordering and holding) the inventory?
$ ____ (Round response to 2 decimal places)
e.) What is the time between orders?
____ days (Round response to 2 decimal places)
f.) What is the reorder point (ROP) (Round response to 2 decimal places)
____ Units (Round response to 2 decimal places)
Annual demand 2,550 Holding cost per bracket per year $1.40 Order cost per order $18.75 Lead time 22 days Working days per year 250Explanation / Answer
Solution:
(a) Economic Order Quantity (EOQ) is calculated as:
EOQ = SQRT [(2 x D x Co) / H]
where,
D = Annual demand
Co = Order cost
H = Holding cost
Putting the given values in the above formula, we get;
EOQ = SQRT [(2 x 2550 x 18.75) / 1.40]
EOQ = 261.35 units
(b) Average Inventory = EOQ / 2
Average Inventory = 261.35 / 2
Average Inventory = 130.68
Annual Inventory holding cost = Average Inventory x Holding cost
Annual Inventory holding cost = 130.68 x 1.40
Annual Inventory holding cost = $182.95
(c) Number of orders = Annual demand / EOQ
Number of orders = 2550 / 261.35
Number of orders = 9.76
Annual order cost = Number of orders x Ordering cost
Annual order cost = 9.76 x 18.75
Annual order cost = $183
(d) Total annual cost of managing = Annual holding cost + Annual order cost
Total annual cost of managing = $182.95 + $183
Total annual cost of managing = $365.95
(e) Time between orders = Number of working days / Number of orders
Time between orders = 250 / 9.76
Time between orders = 25.61 days
(f) Reorder point = Lead time x Daily demand
Reorder point = 22 x (2550 / 250)
Reorder point = 224.4 units
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