Ross White\'s machine shop uses 2,500 brackets during the course of a year, and
ID: 2677052 • Letter: R
Question
Ross White's machine shop uses 2,500 brackets during the course of a year, and this usage is relatively constant throughout the year. These brackets are purchased from a supplier 100 miles away for $15 each, and the lead time is 2 days. The holding cost per bracket per year is $1.50 (or 10% of the unit) and ther ordering cost per order is $18.75. There are 250 working days per year.a) What is EOQ?
b)Given the EOQ, what is the average inventory? What is the annual inventory holding cost?
c) In minimizing cost,how many orders would be made each year? What would be the annual ording cost?
d) Given the EOQ, what is the total annual inventory cost(including purchase cost)?
e) what is the time between ordes?
f) what is the ROP?
Explanation / Answer
a) What is EOQ? EOQ = square root of (2*demand for the year*cost to place a single order/cost to hold one unit inventory for a year) EOQ = square root of (2*2500*18.75/1.50) EOQ = 250 b)Given the EOQ, what is the average inventory? What is the annual inventory holding cost? average inventory = eoq/2 average inventory = 250/2 average inventory = 125 annual inventory holding cost = 125*1.50 annual inventory holding cost = 187.50 c) In minimizing cost,how many orders would be made each year? What would be the annual ording cost? 2500/250 = 10 orders 10 orders per year 10*18.75 = 187.50 Annual ordering cost = 187.50 d) Given the EOQ, what is the total annual inventory cost(including purchase cost)? 2500*15 + 187.50 + 187.50 = 37,875 Annual inventory cost = 37,875 e) what is the time between ordes? (250/2500)*250 working days = 25 working days f) what is the ROP? Reorder point = number of units sold per time period*purchase order lead time Reorder point = (2500/250 days)*2 days = 20 units
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