Given the following information, formulate an inventory management system Find t

Question

Given the following information, formulate an inventory management system Find the Optimal Ordering Quantity and Reorder Point. Determine the annual Holding Cost and Order Cost. If a price break (discount) of $100 per order offered for purchase quantities over 2,500. Would you take advantage of it? How much would you save annually? Find the reorder point Find holding cost(using Q_) Find Ordering cost(using Q_) Find Total cost = Holding + Ordering cost Find holding cost(using Q_) Find Ordering cost(using Q_) find Total cost = Holding + Ordering cost

Explanation / Answer

Annual Demand(D)=25000 Weekly Demand(d)=500 Ordering Cost(O)=300 Holding Cost(H)=30%*10=3/item Lead Time(L)=1 week Std dev(Sd)=25 per week Price(P)=10 i)EOQ=Sqrt(2*D*O/H)=sqrt(2*25000*300/3) Q= 2236.068 Reorder Point=dL+zSd*Sqrt(L)=500*1+1.64*25*sqrt(1)= 541 ii)Annual Ordering Cost=D*O/Q=25000*300/2236 AOC= 3354.204 ii-2)Annual Holding Cost=Q*H/2=2236*3/2 AHC= 3354 iii) Total cost at EOQ=AOC+AHC+PD=3354+3354+10*25000 TC(EOQ) 256708 Total Cost at the order size of 2500 AOC=25000*200/2500= 2000 AHC=2500*3/2= 3750 PD=25000*10 250000 TC(2500)= 255750 Yes it is advantageous to order 2500 units with the offered discount Annual Savings=256708-255750= 958

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