Jill’s Job Shop buys the following Part (X-123) for use in its production system
ID: 2747200 • Letter: J
Question
Jill’s Job Shop buys the following Part (X-123) for use in its production system. The parts are needed throughout the entire 52-week year. Data for the part are as follows:
ITEM
X-123
Annual demand
10,000
Holding cost (% of item cost)
20%
Order cost
$150
Lead time
4 weeks
Safety stock
55 units
Item Cost
$10.00
a) Compute the optimal order quantity and the associated total cost. Please explain how to find the associated total cost.
b) What is the reorder point for X-123?
ITEM
X-123
Annual demand
10,000
Holding cost (% of item cost)
20%
Order cost
$150
Lead time
4 weeks
Safety stock
55 units
Item Cost
$10.00
Explanation / Answer
answer:- economic order quantity-
= (2* Annual usage * ordering cost) / holding cost
= (2 * 10,000 * 150) / 2
= 1224.7
So optimal usage quantity is 1224.7
Note :- Holding cost = 20% of cost price = 20% * $10 = $2
Answer- b Re-order level point = (average daily usage * lead time) + safety stock
Average daily usage = annual quantity / 365 days
= 10,000 / 365 days = 27.39
ROP = (27.39 * 4 weeks ) + 55
= 164.56
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