2. Inventory control. Zellner Paint Company uses 18,000 cases of gallon cans per
ID: 2497003 • Letter: 2
Question
2. Inventory control. Zellner Paint Company uses 18,000 cases of gallon cans per year in its production of indoor paint. A preliminary analysis indicates that demand for cans is steady enough for an EOO model to be appropriate. There are 250 working days per year and the inventory holding cost is 20% of the unit purchase cost per year Current policy is to purchase 1500 cases at the beginning of each month from Vendor A at a cost of S12.00 per case, with a fixed cost of $50 per order. There is a dependable lead time of one week (5 working days). · (a) What would be the economic order quantity? (b) What would be the annual savings of using the EOQ in place of the current ordering policy? Answer (c) What would be the reorder point using the EOQ policy? orders per year? Zellner has recently been approached by Vendor B, who would drop the price to S11.50 per case if 5,000 units or more were ordered at one time. Assume that the cost to place an order would remain the same if Vendor B were used. (d) From which vendor should Zellner purchase its cases and in what order quantity? Vendor: Order quantity: (Show Show your calculations) (e) What would be the total annual cost of your answer to (d)?Explanation / Answer
EOQ = Square Root((2*Required Quantity*Cost per order)/Carrying cost)
Annual requirement = 18000 units
Oredring cost = 50 per order
Carryiing value = 20% of purchase price = 12*20% = 2.4 per unit per year.
EOQ = ((2*18000*50)/2.4)^(1/2) = 866 units
Reorder level = Lead time * Consumption per day
Consumption per day = 18000/250 = 72 units
Reorder level = 72*5 = 360 units
Number of orders per year = 18000/866 = 21 orders
In both cases above, purchasing from existing vendor in EOQ is economical
Optimum Manufacturing quantity will be = ((2*200*18000)/(11.5*20%))^(1/2) = 1769 units
Manufacture of the prduct also costs higher than EOQ ordering
If safety stock is used, then reorder level will be (72*5)+25 = 385 units
Current Ordering EOQ Requirement 18000 18000 Number of orders 12 20.7852194 Ordering cost 600 1039.26097 Carrying cost per order 3600 2078.4 Total inventory handling cost 4200 3117.66097 Savings 1082.33903Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.