point Use the following scenario and data for all questions Demand for a specifi
ID: 2510507 • Letter: P
Question
point Use the following scenario and data for all questions Demand for a specific design of dinning sets has been fairly large in the past several years and Statewide Furnishings, Inc. usually orders new dinning sets 10 times a year. It is estimated that the ordering cost is $400 per order. The carrying cost is $50 per unit per year. Furthermore, State Wide Furnishings, Inc. has estimated that the stock out cost is $120 per unit per year. Based on forecast, the annual demand is 600 units. State Wide Furnishings, Inc. has 350 working days in a year and its lead time is 14 working days.Explanation / Answer
Answer 9.
Economic Order Quantity
= (2 * Annual Material Requirement * per order cost/Carrying Cost per Unit per annum)0.50
= (2*600*400/50)0.5
=(9600)0.5
= 97.979 i.e. 98 Units
At EQO of 98 Units No of orders placed will be = 600/98 = 6.12 i.e. 7 Orders
So total order Cost = 400*7 = $2,800
Carrying Cost per unit per annum = $50
Annual Carrying Cost = Ordering Quantity/2 *carrying cost per unit per year
=98/2*50 = $2,450
Shortage Cost will be incurred in case if there is delay in placing orders or if lead time increases due to some reasons. So it cannot be determined for the year before incurring.
So total Annual relevant Costs Are $2,800 + $2,450 = $5,250
So the answer is fifth option “None of the above”.
Note: - Even though shortage is allowed, the total costs will be minimum at EOQ and so all costs had been calculated at that level.
Answer 10.
Annual Demand = 600 Units
Lead Time = 14 Days
Reorder point is stock level at which order needs to be placed i.e. stock required for lead time of 14 days = 600 * 14/350 = 24 Units
So the Answer is 24 Units
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.