Joe Henry\'s machine shop uses 2530 brackets during the course of a year. these
ID: 461956 • Letter: J
Question
Joe Henry's machine shop uses 2530 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:
Annual Demand: 2530
Holding Cost per bracket per year: $1.40
Order cost per order: $19.00
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
Given :
Annual Demand: 2530
Holding Cost per bracket per year: $1.40
Order cost per order: $19.00
Lead Time: 2 days
Working days per year: 250
a)
EOQ = SQRT(2 × Demand Quantity × Cost Per Order / Carrying Cost Per Order)
= SQRT(2 × 2530 × 19 / 1.40 )
= 262
b)
Average inventory held is 131 ((0+262)/2) which means total carrying costs of $183 (i.e. 131 × $1.40).
c)
Total orders required in a year = 2530/262 = 9.65 ~ 10 orders
Total annual ordering cost = total orders in a year x order cost per order = $19 x 10 = $190
d)
Total cost of managing inventory = annual ordering cost + annual carrying cost = $190 + $183 = $373
e)
Time between the orders = total working days per year / total no. of orders = 250 / 10 = 25 Days
f)
Daily demand = Annual demand / total working days = 2530 / 250 = 10.12
As Safety Stock is not given, Assume it as 0
ROP = Lead time demand + Safety Stock = 2 days of lead time * 10.12 daily demand + 0 = 20.24 brackets
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.