Problem C: Your work has been so great that you were promoted to Senior Inventor
ID: 347138 • Letter: P
Question
Problem C:
Your work has been so great that you were promoted to Senior Inventory Manager at Konrad’s Kuckoo’s. You are now the boss. Through research you were able to find another clock supplier in Switzerland that might be a better supplier in terms of costs than t he supplier in Problem B.
These clocks are also expensive and have the same basic look and quality as the other Swiss clock manufacturer. So they do not sell as quickly at the clocks from Germany. Here is the data for the second Swiss clocks:
Demand period is 30 days
Demand during the period: 20 units
Ordering and Transportation costs per order: $4100
Carrying cost per unit per month (30 days): $9.00
Order lead Time from Switzerland: 22 days
What is the
Economic Order Quantity (EOQ)
Average Cycle Stock
The annual Holding (Carrying Cost) and Ordering Costs
The suggested Reorder Point for this item?
Explanation / Answer
Monthly demand = 20 units
Annual demand (D) = monthly demand x 12 months = 20 units x 12 = 240 units
Ordering cost (S) = $4100
Carrying cost per unit per month = $9.So carrying cost per unit per year(H) = $9 x 12 = $108
Lead time (L) = 22 days
There are 30 days in a month. So in a year there are 12x30 = 360 days
Average daily demand (d) = D/number of days in a year = 240/360 = 0.67 units
a) Economic order quantity (Q) = sqrt of (2DS / H)
= sqrt of [(2 x 240 x 4100)/108]
= 134.99 or rounded to 135 units
b) Average cycle stock = Q/2 = 135/2 = 67.5 units
C) Annual holding cost = (Q/2)H = (135/2)108 = $7290
Annual Ordering cost = (D/Q) S = (240/135)4100 = $7289
d) Reorder point = d x L = 0.67 x 22 = 17.74 units
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