Question 2 You are employed as an industrial engineer at a manufacturing plant w

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Question 2 You are employed as an industrial engineer at a manufacturing plant which manufactures filing cabinets. Annual demand for the two-drawer filing cabinet is 50,000 units. The manufacturing firm controls one of the largest office supply stores in South Africa. You estimate the ordering cost to be R10 per order. The carrying cost is R4 per unit per year. Lead time for the filing cabinet is 25 days. During this time, the daily demand is estimated to be 250 units. The CEO has assigned you the responsibility to establish a policy for inventory holding. You are required to: a. Compute the economic order quantity. b. Compute the reorder point. 13

Explanation / Answer

EOQ= square root of [( 2* annual demand* ordering cost)/holding cost]

= square root of [(2*50000*10)/4]

= 500 units

Re order point= daily demand * lead time + safety stock

=250*25 + 0

= 6250 units

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