Cress Electronic Products manufactures components used in the automobile industr
ID: 3312196 • Letter: C
Question
Cress Electronic Products manufactures components used in the automobile industry. Cress purchases parts for use in its manufacturing operation from a variety of different suppliers. One part that it buys has the following data: annual demand is 5000 units, the ordering cost is $80, and the annual holding cost is 25%.
A. If the cost of the part is $20 per unit, what is the economic order quantity?
B. Assume 250 days of operation per year. If the lead time for an order is 12 days, what is the reorder point?
Explanation / Answer
Annual demand(D) is 5000 units
The ordering cost(S) is $80/order
The annual holding cost rate(I) is 25%
(a) Cost of the part is $20 per unit
The economic order quantity
Q = (2DS/IC)^(1/2)
Q= (2*5000*80 / 0.25*20)^(1/2)
Q = 160000^(1/2)
Q = 400 units
(b)
Lead time(LT) for an order is 12 days
and 250 days of operation per year
The reorder point
R = D*LT
R= 5000*(12/250)
R = 240 unit
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