oe Henry\'s machine shop uses 2500 brackets during the course of a year. these b
ID: 411782 • Letter: O
Question
oe Henry's machine shop uses 2500 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: 2500
Holding Cost per bracket per year: $1.40
Order cost per order: $19.75
Lead Time: 2 days
Working days per year: 250
What is the EOQ? ____ units (round your response to two decimal places).
What is the average inventory if the EOQ is used? _____ units units (round your response to two decimalplaces).
What would be the annual inventory holding cost? $ _______ (round your response to two decimalplaces).
c) Given the EOQ, how many orders will be made annually? _____orders (round your response to two decimal places).
What would be the annual order cost? $$________ (round your response to two decimal places).
d. Given the EOQ, what is the total annual cost of managing (ordering and holding) the inventory? $______
(round your response to two decimal places).
e) What is the time between orders?_______ days. (round your response to two decimal places).
f) What is the reorder point (ROP)?______ units (round your response to two decimal places).
(round your response to two decimal places).
Explanation / Answer
Annual demand = D = 2500
Holding cost per bracket per year = Ch = $1.40
Ordering cost per order = $19.75
Economic Order Quantity ( EOQ ) = Square root ( 2 x Co x D / Ch ) = Square root ( 2 x 19.75 x 2500/ 1.40 ) = 265.58
EOQ = 265.58 BRACKETS
Average inventory if EOQ is used = EOQ/ 2 = 265.58/2 = 132.79 Brackets
AVERAGE INVENTORY = 132.79 BRACKETS
Annual inventory holding cost = Holding cost per bracket per year x Average inventory = $1.40 x 132.79 = $185.90
ANNUAL INVENTORY HOLDING COST = $185.90
Number of orders to be made annually = Annual demand / EOQ = 2500 /265.58 = 9.41
NUMBER OF ORDERS TO BE MADE ANNUALLY = 9.41
Annually ordering cost = Ordering cost per order x Number of orders per year = $19.75 x 9.41 = $185.85
ANNUAL ORDERING COST = $185.85
Total annual cost of managing inventory = Ordering cost + Holding cost = $185.85 + $185.90 = $371.75
TOTAL ANNUAL COST OF MANAGING INVENTORY = $371.75
Time between orders = EOQ/annual demand x 250 days = 265.58/2500 x 250 = 26.56 days
TIME BETWEEN ORDERS = 26.56 DAYS
Average daily demand = Annual demand / Number of working days = 2500/ 250 = 10
Thus, Reorder point = Average daily demand x Lead time = 10 x 2 = 20 brackets
LEAD TIME = 20 BRACKETS
EOQ = 265.58 BRACKETS
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