Westside Auto purchases a component used in the manufacturing of automobile generators directly from the supplier. Westside’s generator production operation, which is operated at a constant rate, will require 1,000 components per month throughout the year (12,000 units annually). Assume that the ordering costs are $25 per order, the unit cost is $2.50 per component, and annual holding costs are 20% of the value of the inventory. Eastside has 250 working days per year and a lead time of 10 days. a) What is the EOQ for this component? b) What is the cycle time?

Westside Auto purchases a component used in the manufacturing of automobile generators directly from the supplier. Westside’s generator production operation, which is operated at a constant rate, will require 1,000 components per month throughout the year (12,000 units annually). Assume that the ordering costs are $25 per order, the unit cost is $2.50 per component, and annual holding costs are 20% of the value of the inventory. Eastside has 250 working days per year and a lead time of 10 days. a) What is the EOQ for this component? b) What is the cycle time?

Purchasing and Supply Chain Management

6th Edition

ISBN:9781285869681

Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Chapter16: Lean Supply Chain Management

Section: Chapter Questions

Problem 10DQ: The chapter presented various approaches for the control of inventory investment. Discuss three...

See similar textbooks

Similar questions

Westside Auto purchases a component used in the manufacture of automobile generators directly from the supplier. Westside’s generator production operation, which is operated at a constant rate, will require 1000 components per month throughout the year (12,000 units annually). Assume that the ordering costs are $25 per order, the unit cost is $2.50 per component, and the annual holding costs are 20% of the value of the inventory. Westside has 250 working days per year and a lead time of 5 days. Answer the following inventory policy questions: a. What is the EOQ for this component? b. What is the reorder point? c. What are the total annual holding and ordering costs associated with your recommended EOQ?
Harvey’s Specialty Shop is a popular spot that specializes in international gourmet foods. Oneof the items that Harvey sells is a popular mustard that he purchases from an English company.The mustard costs Harvey $10 a jar and requires a six-month lead time for replenishment ofstock. Harvey uses a 20 percent annual interest rate to compute holding costs and estimatesthat if a customer requests the mustard when he is out of stock, the loss-of-goodwill cost is $25a jar. Bookkeeping expenses for placing an order amount to about $50. During the six-monthreplenishment lead time, Harvey estimates that he sells an average of 100 jars, but there issubstantial variation from one six-month period to the next. He estimates that the standarddeviation of demand during each six-month period is 25. Assume that demand is described bya normal distribution. How should Harvey control the replenishment of the mustard?
Dave's Sporting Goods sells Mountain Mouse freeze-dried meals. Dave's uses a continuous review system to manage meal inventories. Suppose Mountain Mouse offers the following volume discounts to its customers: 1−950 meals: $6.50 per meal 951 or more meals: $4.50 per meal. Annual demand is 2,900 meals, and the cost to place an order is $23. Suppose the holding cost is $1.50 per meal per year. How many meals should Dave's order at a time? Part 2 Dave's Sporting Goods should order ______ meals at a time to take advantage of the lower cost per unit. (Enter your response rounded to the nearest whole number.)
Buckley Enterprise sells a product that cost $450 per unit and has a monthly demand of 5,000units. The annual holding cost per unit is calculated as 5% of the unit purchase price. It costs thebusiness $75 to place a single order. Currently the business places 12 orders each year.i) What is the total stock administrative cost of Buckley’s current inventory policy?ii) Is this the entity’s cost minimizing solution for this product each year? Explain.
I need a detailed explanation on how to solve this problem: A paint shop implements an inventory policy on its stock of white paint, which costs the store $6 per can. Monthly demand for cans of white paint is normal with mean 28 and standard deviation 8. The replenishment lead time is 14 weeks. Excess demand is backordered, but costs $10 per back ordered can in labor and loss of goodwill. There is a fixed cost of $15 per order, and the holding cost is based on 30% interest rate per annum. In your computations, assume 4 weeks per month. - Write down the model name and parameters. - What are the optimal lot size and reorder points for white paint (include the formulas)? - What is the optimal safety stock (include the formula)? *** Suppose the paint shop from the above problem adopts a service level policy. - What are the optimal lot size and reorder points for white paint, such that 90% of the cycles are filled without backordering (include all formulas)? - What is the fill rate…
A specialty coffeehouse sells Colombian coffee at a fairly steady rate of 280 poundsannually. The beans are purchased from a local supplier for $2.40 per pound. The coffeehouse estimates that it costs $45 in paperwork and labor to place an order for thecoffee, and holding costs are based on a 20 percent annual interest rate.c. What is the average annual cost of holding and setup due to this item?
Northside Auto purchases a component used in the manufacturing of auto-bile generators directly from the supplier. Eastside’s generator production operation, which is operated at a constant rate, will require 1,000 components per month throughout the year (12,000 units annually). Assume that the ordering costs are $25 per order, the unit cost is $2.50 per component, and annual holding costs are 20% ofthe value of the inventory. Eastside has 250 working days per year and a lead timeof 10 days. a. What is the EOQ for this component?b. What is the cycle time?c. What is the reorder point? *Please solve for a-c. Neatly write all your work/steps on paper, NO EXCEL* thank you!
1. The monthly demand for a part is 1,500 units. The order cost is $285 per order, the holding cost is $56 per unit per year and the part cost is $850 per unit. The firm operates twelve months per year. Compute the (a) EOQ, (b) annual holding cost, (c) annual order cost, and (d) annual total inventory cost. 2. The weekly requirement of a part is 950 units. The order cost is $85 per order, the holding cost is $5 per unit per year and the part cost is $250 per unit. The firm operates fifty-two weeks per year. Compute the (a) EOQ, (b) annual holding cost, (c) annual order cost, and (d) annual total inventory cost. 3. Given the following information, compute the economic order quantity, annual holding cost, annual order cost and annual total inventory cost.Annual requirements (R) = 50,000 unitsOrder cost (S) = $150 per orderHolding rate (k) = 15%Unit cost (C) = $100 per unit
Millennium Liquors is a wholesaler of sparkling wines. Its most popular product is theFrench Bete Noire, which is shipped directly from France. Weekly demand is 45 cases.Millennium purchases each case for $120, there is a $300 fixed cost for each order(independent of the quantity ordered), and its annual holding cost is 25 percent.a. What order quantity minimizes Millennium’s annual ordering and holding costs?b. If Millennium chooses to order 300 cases each time, what is the sum of its annualordering and holding costs?c. If Millennium chooses to order 100 cases each time, what is the sum of the orderingand holding costs incurred by each case sold?d. If Millennium is restricted to ordering in multiples of 50 cases (e.g., 50, 100, 150, etc.),how many cases should it order to minimize its annual ordering and holding costs?e. Millennium is offered a 5 percent discount if it purchases at least 1000 cases. If itdecides to take advantage of this discount, what is the sum of its annual…
Tacky Souvenirs sells lovely handmade tablecloths at its islandstore. These tablecloths cost Tacky $15 each. Customers wantto buy the tablecloths at a rate of 240 per week. The companyoperates 52 weeks per year. Tacky, the owner, estimates hisordering cost at $50. Annual holding costs are 20 percent of theunit cost. Lead time is 2 weeks. Using the information given,(a) Calculate the economic order quantity.(b) Calculate the total annual costs using the EOQ.(c) Determine the reorder point.
A Mercedes dealer pays $40,000 for each car purchased (wholesale price). The annual holding cost is estimated to be 30% of the dollar value of inventory. The dealer sells an average of 1200 cars per year. They believe that demand is backlogged but estimate that if they are short one car for one year, the loss in future profits is about 10% of the wholesale price. Each time the dealer places an order for cars, ordering costs amount to $1600. Assume there are 360 work days per year. Question: What percent of the time do shortages occur? I've deduced the percent of shortage time to be 25%, but am not sure I've set up my formulas correctly.
A producer of tires has an annual demand for a specific brand of tire. Theannual demand is 14,000. The cost of ordering these tires for the distributioncenter for each order is $1,200 per order. The annual holding cost is $8.50 pertire per year (in U.S. dollars): (In Excel with formulas)a What is the EOQ and the total annual cost at EOQ?b If the company decides to place more frequent orders, then theordering cost would increase to $1,800 per order. Nevertheless, the increasedfrequency of orders would decrease the annual holding cost to $6.50 per tireper year. Should the distribution center order tires more frequently?