c)what are the annual ordering costs? d)what is the reorder point? Southeastern

Question

c)what are 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 16,000 units. Southeasterm estimates its annual holding cost for this item to be $22 per unit. The cost to place and process an order from the supplier is $77. 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? 335 units (round your response to the nearest whole number). b) What are the annual holding costs? S (round your response to the nearest whole number).

Explanation / Answer

Annual demand, D = 16000

Ordering cost, S = $ 77

Holding cost, H = $ 22

a) EOQ = SQRT(2DS/H) = SQRT(2*16000*77/22) = 335

b) Annual holding cost = (Q/2)*H = (335/2)*22 = $ 3685

c) Annual Ordering cost = (D/Q)*S = (16000/335)*77 = $ 3678

d) Reorder point = Demand per day * Lead time in days = (16000/300)*3

= 160

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