M. Cotteleer Electronics supplies microcomputer circuitry to a company that inco
ID: 362571 • Letter: M
Question
M. Cotteleer Electronics supplies microcomputer circuitry to a company that incorporates microprocessors into refrigerators and other home appliances. One of the components has an annual demand of
260
units, and this is constant throughout the year. Carrying cost is estimated to be
$0.50
per unit per year, and the ordering (setup) cost is
$21
per order.
M. Cotteleer Electronics supplies microcomputer circuitry to a company that incorporates microprocessors into refrigerators and other home appliances. One of the components has an annual demand of 260 units, and this is constant throughout the year. Carrying cost is estimated to be $0.50 per unit per year, and the ordering (setup) cost is $21 per order. a) To minimize cost, how many units should be ordered each time an order is placed?units(round your response to two decimal places). b) How many orders per year are needed with the optimal policy? orders (round your response to two decimal places,). c) What is the average inventory if costs are mnzeunits (round your response to two decimal places). d) Suppose that the ordering (setup) cost is not $21, and Cotteleer has been ordering 125 units each time an order is placed. For this order policy (of Q 125) to be optimal, the ordering (setup) cost would have to be (round your response to two decimal places)Explanation / Answer
Annual demand (D) = 260 units
Ordering cost (S) = $21
Carrying cost (H) = $0.50
a) Economic order quantity (Q) = sqrt of (2DS /H)
= sqrt of [(2 x 260 x 21) / 0.50]
= sqrt of 21840
= 147.78 units
Therefore to minimize cost, 147.78 units should be ordered each time an order is placed.
b) Number of orders per year = D / Q = 260/147.78 = 1.76 orders
c) Average inventory = Q / 2 = 147.78/2 = 73.89 unit's
d) If the order quantity (Q) = 125 units
Q = sqrt of (2DS /H)
=> Square of Q = 2DS / H
=> Square of 125 = (2 x 260 x S) / 0.50
=> 15625 = 520S / 0.50
=> 520S = 15625 x 0.50
=> S = (15625 x 0.50) / 520
=> S = $15.02
So the ordering cost would have to be $15.02
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