2. EOQ / Production / Discounts A machine company uses 3000 brackets during the course of a year. The brackets are bought from an external supplier at a price of 50 kr. each and will be received the same day as the order is placed. The average ordering cost is 187.50 kr. per order. The company uses an interest rate of 18% to account for the cost of capital, the cost of storage and handling is estimated to 4% and insurance to 3% of the value. You can assume that there are 250 working days in one year. a. Determine the economic order quantity for the brackets. b. Given the optimal order size from a, calculate the following: i. Cycle time. ii. Average inventory level. ii. Annual inventory cost. iv. Annual ordering cost. The company is able to produce the brackets themselves at a rate of 60 per day. The fixed cost of setting up for production run is 600 kr. You can also assume that the variable cost of production is equal to the price when buying from an external supplier. c. What is the optimal size of the production run for the brackets?
2. EOQ / Production / Discounts A machine company uses 3000 brackets during the course of a year. The brackets are bought from an external supplier at a price of 50 kr. each and will be received the same day as the order is placed. The average ordering cost is 187.50 kr. per order. The company uses an interest rate of 18% to account for the cost of capital, the cost of storage and handling is estimated to 4% and insurance to 3% of the value. You can assume that there are 250 working days in one year. a. Determine the economic order quantity for the brackets. b. Given the optimal order size from a, calculate the following: i. Cycle time. ii. Average inventory level. ii. Annual inventory cost. iv. Annual ordering cost. The company is able to produce the brackets themselves at a rate of 60 per day. The fixed cost of setting up for production run is 600 kr. You can also assume that the variable cost of production is equal to the price when buying from an external supplier. c. What is the optimal size of the production run for the brackets?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints
Section: Chapter Questions
Problem 7E: Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The...
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