3. Value Electronics has a yearly demand of 100,000 units for their tablet. The
ID: 467840 • Letter: 3
Question
3.
Value Electronics has a yearly demand of 100,000 units for their tablet. The order processing cost per order is $2,000, and inventory holding cost is $100/item/year. They have opted for the reorder point system, and it has two options for transportation: by truck and by rail. Truck transportation takes 1 week, while rail transportation takes 2 weeks of lead time. Truck transportation costs $2 per tablet, while by rail the transportation cost is $1 per tablet. It is the policy of Value Electronics to hold enough inventories to cover demand for twice the lead time.
Calculate the annual cost of holding inventory for the truck scenario.
Explanation / Answer
Truck scenario
reorder point = d*l
d= 100000/311
l= 7days
reorder point = 2254
Qopt. = sqrt(2*Co*D/Cc)
= 2000
no. of order per year = D/Qopt.
= 50
saftey stock = twice of demand during lead time
= 2*2254
4508
Annual holding cost = 4508*50*100
=$22,540,000
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