Southeastern Bell stocks a certain switch connector at its central warehouse for
ID: 434684 • Letter: S
Question
Southeastern Bell stocks a certain switch connector at its central warehouse for supplying field service offices. The yearly demand for these connectors is 14,000 units. Southeastern estimates its annual holding cost for this item to be $23 per unit. The cost to place and process an order from the supplier is $73. The company operates 300 days per? year, and the lead time to receive an order from the supplier is 3 working days.
?a) What is the economic order? quantity? ______ units ?(round your response to the nearest whole? number).
b) Find the annual holding costs
c) Find the annual ordering costs
d) What is the reorder point?
Explanation / Answer
Answer: - Given data
Annual Demand (D) = 14000 units
Daily demand (d) = Annual Demand / Total working days = 14000 / 300 = 46.6 units
Cost to place an order (S) = $73
Holding cost (H) = $23 per unit
Lead time (LT) = 3 days
(a) EOQ (Economic order quantity) = sqrt(2*D*S / H)
= sqrt(2*14000*73 / 23) = sqrt(88,869.56) = 298.10 ~ 298
EOQ = 298 units
(b) Annual holding cost = (Q / 2) * H
= (298 / 2) * 23 = $3427
Annual holding cost = $3427
(c) Annual ordering cost = (D / Q) * S
= (14000 / 298) * 73 = $3429.53 ~ $3430
Annual ordering cost = $3430
(d) Reorder point = Daily demand (d) * Lead time (LT)
= 46.6 * 3 = 139.8 ~ 140
Reorder point = 140 units
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