Joe Henry\'s machine shop uses 2,500 brackets during the course of a year. These
ID: 434324 • Letter: J
Question
Joe Henry's machine shop uses 2,500 brackets during the course of a year. These brackets are purchased from a supplier 90 miles away. The following information is known about brackets: Annual demand- 2,500 , Holding cost per bracket per year- $1.50 , order coat per order- $18.75 , Lead time- 2 days, working days per year- 250.
a) Given the above information, what would be the economic order quantity (EOQ)?
b) Given the EOQ, what would be the average inventory? What would be the annual inventory holding cost?
c) Given the EOQ, how many orders would be made each year? what would be the annual order cost?
d) Given the EOQ,what is the total annual cost of managing the inventory?
e) What is the time between orders?
f) What is the reorder point (ROP)?
Explanation / Answer
Annual Demand, D = 2500; so, daily demand = 2500/250 = 10 per day
Holding cost per unit per annum, H = 1.50
Order cost per order, S = 18.75
Average lead time, L = 2 days
(a)
EOQ = (2.D.S / H)1/2 = SQRT(2*2500*18.75/ 1.5) = 250 units
(b)
Average [cycle stcock] inventory = EOQ / 2 = 125 units
Total inventory holding cost in year = 125 x H = $187.5
(c)
No. of orders placed = (D / EOQ) = 2500/250 = 10
Annual order cost = 10 x 18.75 = $187.5
(d)
Total annual cost = ordering cost + carrying cost = $187.5 + $187.5 = $375
(e)
Time between orders = EOQ / daily demand = 250 / 10 = 25 days
(f)
ROP = average lead time demand = lead time x daily demand = 2 x 10 = 20 units
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