Joe Henry\'s machine shop uses 2,480 brackets during the course of a year. These
ID: 365743 • Letter: J
Question
Joe Henry's machine shop uses 2,480 brackets during the course of a year. These brackets are purchased from a supplier 90 miles away. The following information is known about the brackets
Annual demand
2,480
Holding cost per bracket per year
$ 1.30
Order cost per order
$18.00
Lead time
2 days
Working days per year
250
a.) Given the above information, what would be the economic order quantity (EOQ)?
b.) Given the EOQ, what would be the average inventory? What would be the annual inventory holding cost?
c.) Given the EOQ, how many orders would be made each year? What would be the annual order cost?
d.) Given the EOQ, what is the total annual cost of managing the inventory?
e.) What is the time between orders?
f.) What is the reorder point (ROP)
PLEASE DO NOT ROUND UP, GIVE ACTUAL VALUE
Annual demand
2,480
Holding cost per bracket per year
$ 1.30
Order cost per order
$18.00
Lead time
2 days
Working days per year
250
Explanation / Answer
A.
EOQ = (2*Annual demand * ordering cost/holding cost per unit per year)^.5
EOQ = (2*2480*18/1.3)^.5
EOQ = 262.06 brackets or 262 brackets
B.
Average inventory = EOQ quantity/2 = 262.06/2 = 131.03 or 131 brackets
Annual inventory holding cost = (EOQ/2)* holding cost per unit per year
Annual inventory holding cost = (262.06/2)*1.3
Annual inventory holding cost = $170.339
C.
No. of orders per year = Annual demand / EOQ quantity
No. of orders per year = 2480/262.06 = 9.46 orders per year
Annual ordering cost = (Annual demand / EOQ quantity)* ordering cost per order
Annual ordering cost = (2480/262.06)*18 = $170.34
D.
Total annual cost = Annual inventory holding cost + Annual ordering cost
Total annual cost = $170.339 + $170.34 = $340.679
E.
Time between the orders = working days per year/ No. of orders per year
Time between the orders = 250/9.46
Time between the orders = 26.427 days
F.
Reorder point = Daily demand * lead time = (2480/250)*2
Reorder point = 19.84 brackets
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