JAL Trading is a Hong Kong manufacturer of electronic components. During the cou
ID: 447315 • Letter: J
Question
JAL Trading is a Hong Kong manufacturer of electronic components.
During the course of a year it requires container cargo space on ships
leaving Hong Kong bound for the United States, Mexico, South
America, and Canada. The company needs 280,000 cubic feet of
cargo space annually. The cost of reserving cargo space is $7000 and
the cost of holding cargo space is $0.80/ft^3. Determine how much
storage space the company should optimally order, the total cost, and
how many times per year it should place an order to reserve space.
Explanation / Answer
Given: Annual Demand = 280,000 cubic feet
Reserve Cost (C0) = $7000
Holding Cost (Cc) = $0.80/ft3
Q optimal = (2*C0*D)/Cc
Q opt = (2*7000*280000)/0.8
Q opt = 70,000 per cubic feet.
Total cost:-
TC = (C0*D / Qopt) + (Cc * Qopt / 2)
TC= (7000 * 280000/70000) + (0.8 * 70000/2)
TC= 28,000 + 28,000
TC= $56,000
Number of times per year it should place an order to reserve space
Number of orders per year = D / Qopt
= 280,000 / 70,000 = 4 order per year.
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