White steps :)) Problem1 A company makes golf carts. It produces 450 carts a mon

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White steps :))

Problem1 A company makes golf carts. It produces 450 carts a month. It buys the tires for carts from a supplier at a cost of $20 per tire. The company's inventory carrying cost is estimated to be 15% of cost and the ordering is $50 per order. a. Calculate the EOQ In this problem: b. What is the number of orders per year? c. Compute the average annual ordering cost. d. Compute the average inventory. e. What is the average annual carrying cost? f. Compute the total cost. Production Planning (Inventory Management and MRP)

Explanation / Answer

Ans:-

a). Economic order qualtity = square root of [(2 x Annual demand x ordering costs) ÷ carrying costs]

In this case, Monthly Demand = 450, So Annual demand = 450*12 = 5400

Ordering cost = $50, Inventory carrying cost = 15% of cost = 20*0.15 = 3

So, Economic order qualtity = square root of [(2 x Annual demand x ordering costs) ÷ carrying costs]

= square root of [(2 x 5400 x 50) ÷ 3] = square root of (180000) = 424.26 units

b). Number of orders per year = Annual demand / Economic order quantity = (450*12)/ 424.26 = 12.72

c). Average annual ordering cost = (annual demand/order quantity) x cost per order = ((450*12)/424.26)*50 = $636

d). Average inventory = Economic order qualtity/2 = 424.26/2 = 212.13

e). Average annual carrying cost = Average inventory* Inventory carrying cost = 212.13*3 = $636.39

f). Total cost = Average annual ordering cost + Average annual carrying cost = $636 + $636.39 = $1272.39

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