Using the Steamy Speedboats problem above, assume that the order cost has droppe

Question

Using the Steamy Speedboats problem above, assume that the order cost has dropped from $300 to $50. What are the (a) optimal order quantity, (b) annual purchase cost, (c) annual holding cost, (d) annual order cost, and (e) total annual inventory cost? Given the following information for an important purchased part, compute the (a) EOQ, (b) total purchase cost, (c) annual holding cost, (d) annual order cost, (e) annual total cost, (f) reorder point, (g) number of orders placed per year and (h) time between orders.

Explanation / Answer

9) Annual requirements, R 5000 units Order cost, S 100 $/order Holding rate, k 20 % Holding cost, H 4 $/unit (20% of unit cost) unit cost , C 20 $/unit Lead Time, LT 6 days No. of days/ year 360 days a) EOQ EOQ = sqrt (2*S*R/H) EOQ , Q 500 units b) Total purchase cost Total purchase cost = C*R Total purchase cost $ 1,00,000 c) Annual holding cost Annual holding cost = average quantity in stock (i.e. Q/2) * H Annual holding cost $       1,000 d) Annual ordering cost Annual ordering cost = No of orders (i.e. D/Q) * S Annual ordering cost $       1,000 e) Annual Total Cost Annual Total Cost = Total purchase cost+ Annual holding cost + Annual ordering cost Annual Total Cost $ 1,02,000 f) Reprder point Reprder point = Avg daily demand, d * LT Avg daily demand = R/no of days/year Reorder point 83 units (rounding off) g) No of orders placed/year No of orders placed/year = R/ Q No of orders placed/year 10 orders h) time between orders time between orders = no of days per year / no of orders per year time between orders 36 days

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