10. Value Electronics has a yearly demand of 100,000 units for their tablet. The
ID: 467847 • Letter: 1
Question
10.
Value Electronics has a yearly demand of 100,000 units for their tablet. The order processing cost per order is $2,000, and inventory holding cost is $100/item/year. They have opted for the reorder point system, and it has two options for transportation: by truck and by rail. Truck transportation takes 1 week, while rail transportation takes 2 weeks of lead time. Truck transportation costs $2 per tablet, while by rail the transportation cost is $1 per tablet. It is the policy of Value Electronics to hold enough inventories to cover demand for twice the lead time.
Calculate the annual transit inventory cost for the rail scenario.
Explanation / Answer
Total annual Inventory in transit = Annual Demand = 100000
Transit Time = 2 weeks (every item has to spend 2 weeks in transit.)
Annual transit inventory holding cost = 100000*100*2/50 (assuming there are 50 working weeks in a year)
Therefore, Annual transit inventory holding cost = $ 400,000
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