P = Price,D = Annual Demand, O = Order cost, I = Interest, H = Holding cost, A W
ID: 430804 • Letter: P
Question
P = Price,D = Annual Demand, O = Order cost, I = Interest, H = Holding cost,
A What is the carrying cost?
B What is the opportunity cost?
C What is the cost of the average inventory?
D What is the volume of the average inventory?
E The hospital has only $90,000 budgeted for the product. What is the new price the hospital must negotiate with the vendor to make budget?
F Given a constant demand for th product, how many orders will be made in one year?
G Given a constant demand and a lag time of five days between order and receipt, how many units will be in stock when you place an order?
H Given a constant demand, how many days will elapse between orders?
P= $8.25 ·D= 25,000 ·O = $12.50 · 1= 10% ·H = $.90Explanation / Answer
A. What is the carrying cost?
Economic order quantity = SQRT(2 × Annual demand × Ordering Cost Per Order / Carrying Cost per unit per year)
= SQRT(2*25000*(12.50/0.9))
=833.33
Or 834 units
Carrying cost
= Q/2 * Carrying cost per unit per year
=417*0.9
=$ 375.3
B What is the opportunity cost?
Opportunity cost (of holding money in inventory)-the opportunity lost by holding money in inventory
=$ 375.3 *0.10
=$37.53
C What is the cost of the average inventory?
Total inventory cost (Cost of Average inventory)
=Carrying cost +ordering cost
= Q/2 * Carrying cost per unit per year + (Annual demand /Order Quantity ) * Ordering cost per order
=417*0.9 + ( 25000/834 ) *12.50
=$ 750
D What is the volume of the average inventory?
(Volume of )Average inventory
= Q/2
=834/2
=417
E The hospital has only $90,000 budgeted for the product. What is the new price the hospital must negotiate with the vendor to make budget?
Total cost= Purchase cost+( Carrying cost +ordering cost)
We want the total cost to be $90000
$90000= Purchase cost+( Carrying cost +ordering cost)
$90000= Demand * Price per unit + (750)
$90000= 25000 * Price per unit + (750)
Price per unit =$3.57
F Given a constant demand for th product, how many orders will be made in one year?
Number of orders = Annual demand /Order Quantity
=25000/834
=29.97 or 30 orders
G Given a constant demand and a lag time of five days between order and receipt, how many units will be in stock when you place an order?
Assuming 365 working days per year and constant demand, we order
The reorder point is equal to the amount demanded during the lead time
Reorder point = (25000/365)*5 days
=342.46
When the the stock level reached 343 units we issue an order
H Given a constant demand, how many days will elapse between orders?
Period between orders
=365/Number of orders
= 365/(Annual demand /Order Quantity)
=365/( 25000/834)
=12.18 days
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