The MRP gross requirements for Item A are shown here for the next 10 weeks. Lead

Question

The MRP gross requirements for Item A are shown here for the next 10 weeks. Lead time for A is three weeks and setup cost is $10. There is a carrying cost of $0.010 per unit per week. Beginning inventory is 100 units WEEK 6 80 10 60 205 100 40 20 30 60 20 Gross requirements 40 Use the least total cost and the least unit cost lot-sizing method to determine what quantity the first order should be released and for which period Period (Click to select) Click to select)v Quantity Ordered Least total cost Least unit cost

Explanation / Answer

In Least Total Cost method, we compare the carrying cost and ordering costs for various lot sizes and select the lot where these costs are most nearly equal.

In Least Unit Cost method, we add the carrying cost and ordering cost for various trial lot sizes and divide that by the lot size. The lot size where unit cost is lowest is selected for ordering.

Calculation of Total cost, Unit cost and absolute difference of holding and ordering cost is as follows:

Least unit cost = 0.0859 , corresponding to cumulative order quantity of 190

Least Total cost (least difference of holding cost and ordering cost) = 1.5 corresponding to cumulative order quantity of 455

Gross Requirement 30 60 80 20 60 205 100 Cumulative Order Qty 0 0 0 30 90 170 190 250 455 555 Excess inventory 0 0 0 30 60 80 20 60 205 100 Week carried 0 1 2 3 4 5 6 7 8 9 Order cost 10 10 10 10 10 10 10 10 10 10 Carrying cost This period 0 0 0 0.9 2.4 4 1.2 4.2 16.4 9 Cumulative cost 0 0 0 0.9 3.3 7.3 8.5 12.7 29.1 38.1 Total Cost 10.00 10.00 10.00 10.90 13.30 17.30 18.50 22.70 39.10 48.10 Unit Cost 0.3633 0.1478 0.1018 0.0974 0.0908 0.0859 0.0867 Diff. of Holding & Ordering cost 10.00 10.00 10.00 9.10 6.70 2.70 1.5000 2.70 19.10 28.10

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