b) Find the annual holding costs. c) Find the annual ordering costs. d) What is

Question

b) Find the annual holding costs.
c) Find the annual ordering costs.
d) What is the reorder point?

Southeastern Bell stocks a certain switch connector at its central warehouse for supplying field service offices. The yearly demand for these connectors is 14,900 units. Southeastern estimates its annual holding cost for this item to be $24 per unit. The cost to place and process an order from the supplier is $75. The company operates 300 days per year, and the lead time to receive an order from the supplier is 3 working days. a) What is the economic order quantity?units (round your response to the nearest whole number).

Explanation / Answer

a)

EOQ = Square root of [2*Annual Demand*Ordering cost per order/Carrying cost per unit]

= sqrt(2 * 14900 * 75/24)

= 305.16

= 305 units

b)

annual holding cost = 25 * 305/2

= 3812.5

c)

annual ordering costs

= demand * order cost/Q

= 14900 * 75/305

= 3663.93

d)

reorder point = demand per day * lead time for new order

= 14900/300 * 3

= 149 units

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