EOQ Model Example 3e Demand for metal parts is fairly steady and predictable at
ID: 428330 • Letter: E
Question
EOQ Model Example 3e Demand for metal parts is fairly steady and predictable at 1000 units per year. The unit cost of the pare is 5250,The metal suppler charges a fhed cot of $500 per order to cover the costs of shutting down normal production to produce the requested parts. Our company estimates an opportunity cost for money at 10% per year. It also estimates that the floor space required to store a metal part costs $10 per year. e) If the replenishment lead time is 3 weeks, what is the reorder point? o Remember that the reorder point is given in terms of the level of on-hand inventory o Remember that the lead time and the demand should have the same time units!Explanation / Answer
Annual demand D = 1000 units
Unit cost C = 250
Ordering cost S = 500
Weekly demand d = 1000/52 weeks = 19.23
Lead time L =3 weeks
Demand during lead time = dL = (1000/52)*3 = 57.69
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