Southeastern Bell stocks a certain switch connector at its central warehouse for

Question

Southeastern Bell stocks a certain switch connector at its central warehouse for supplying field service offices. The yearly demand for these connectors is 15,100 units. Southeastern estimates its annual holding cost for this item to be $26 per unit. The cost to place and process an order from the supplier is $78. 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). b) What are the annual holding costs? round your response to the nearest whole number c) What are the annual ordering costs? S(round your response to the nearest whole number). d) What is the reorder point?units (round your response to the nearest whole number)

Explanation / Answer

Annual demand (D) = 15100 units

Ordering cost (S) = $78

Holding cost (H) = $26

Number of days in a year = 300 days

Daily demand = Annual demand / number of days in a year

= 15100/300

= 50.33 or rounded to 50 units

Lead time = 3 days

a) Economic order quantity (Q) = sqrt of(2DS /H)

= sqrt of [(2 x 15100 x 78) / 26]

= sqrt of 90600

= 301 units

b) Annual holding cost = (Q /2)H = (301/2)26 = $3913

C) Annual Ordering cost = (D /Q) S = (15100/301)78 = $3913

d) Reorder point = Daily demand x Lead time = 50 x3 = 150 units

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