Concept explainers
Joe Henry’s machine shop uses 2,500 brackets during the course of a year. These brackets are purchased from a supplier 90 miles away. The following information a known about the brackets:
a) Given the above information, what would be the economic order quantity (EOQ)?
b) Given the EOQ, what would be the average inventory? What would be the annual inventory holding cost?
c) Given the EOQ, how many orders would be made each year? What would be the annual order cost?
d) Given the EOQ, what is the total annual cost of managing the inventory?
e) What is the time between orders?
f) What is the reorder point (ROP)?
Want to see the full answer?
Check out a sample textbook solutionChapter 12 Solutions
Principles of Operations Management: Sustainability and Supply Chain Management, Student Value Edition Plus MyLab Operations Management with Pearson eText -- Access Card Package (10th Edition)
- The chapter presented various approaches for the control of inventory investment. Discuss three additional approaches not included that might involve supply chain managers.arrow_forwardErgonomics Inc. sells ergonomically designed office chairs. The company has the following information: Average demand = 36 units per day Average lead time = 50 days Item unit cost = $70 for orders of less than 400 units Item unit cost = $68 for orders of 400 units or more Ordering cost = $45 Inventory carrying cost = 25% The business year is 250 days Assume there is no uncertainty at all about the demand or the lead time. Calculate EOQ if unit cost is $70 and $68. (Note: These EOQs do not need to be feasible in theirprice range.) (Round up your answers to the next whole number.) EOQ Unit cost at $70 units Unit cost at $68 units Calculate annual ordering costs for each alternative? (For the first value, use your rounded EOQ from Part a. For the second value, use the lowest feasible order quantity needed to qualify for that price level. Round your answers to 2 decimal places.) Annual Ordering Cost Unit cost at $70 Unit…arrow_forwardFruitcake Specialists sells 36,000 fruit cakes annually. Annual carrying costs are P5 per fruit cake and the ordering costs are P100 per order. The firm has decided to maintain a safety stock of one month's sales or 3,000 fruit cakes. The delivery time per order is 5 days. Assume a 365-day a year. What is the EOQ? What is the average inventory? How many orders should be placed each year? What is the total inventory cost? What is the re-order point?arrow_forward
- Joe Henry's machine shop uses 2,530 brackets during the course of a year. These brackets are purchased from a supplier 90 miles away. The following information is known about the brackets: Annual demand 2,530 Holding cost per bracket per year $1.65 Order cost per order $18.25 Lead time 2 days Working days per year 250 Part 2 a) What is the EOQ? enter your response here units (round your response to two decimal places). Part 3 b) What is the average inventory if the EOQ is used? enter your response here units (round your response to two decimal places). What would be the annual inventory holding cost? $enter your response here (round your response to two decimal places). Part 4 c) Given the EOQ, how many orders will be made annually? enter your response here orders (round your response to two decimal places). What would be the annual order cost? $enter your response here (round…arrow_forwardJoe Henry's machine shop uses 2,450 brackets during the course of a year. These brackets are purchased from a supplier 90 miles away. The following information is known about the brackets: Annual demand 2,450 Holding cost per bracket per year $1.65 Order cost per order $18.50 Lead time 2 days Working days per year 250 a) What is the EOQ? __units (round your response to two decimal places). b) What is the average inventory if the EOQ is used?__ units (round your response to two decimal places). What would be the annual inventory holding cost? $__ (round your response to two decimal places). c) Given the EOQ, how many orders will be made annually?__orders (round your response to two decimal places). What would be the annual order cost? $__ (round your response to two decimal places). d) Given the EOQ, what is the total annual cost of managing (ordering and holding) the inventory? __ $ (round your response to two decimal places). d)…arrow_forwardNico's Manufacturing uses 2,400 units of a product per year on a continuous basis. The product carrying costs are $60 per year and ordering costs are $250 per order. It takes 20 days to receive a shipment after an order is placed and the firm requires a safety stock of 8 days of usage in inventory. 1. Calculate the economic order quantity (round up to the nearest whole unit) 2. Calculate the total cost per year to order and carry this item. 3. Their supplier has notified the company that if they increase their order quantity by 58 units they will give the company a discount. Calculate the dollar discount that the company will have to at least give to Nico's Manufacturing to be indifferent.arrow_forward
- Ross White’s machine shop uses 2500 brackets during the course of a year, and this usage is relatively constant throughout the year. These brackets are purchased from a supplier 100 miles away for $15 each, and the lead time is 2 days. The holding cost per bracket per year is $1.50 (or10% of the unit cost) and the ordering cost is $18.75. There are 250 working days per year. Upon hearing that Ross White is considering the producing the brackets in-house, the supplier has notified Ross that the purchase price would drop from $15 per bracket to $14.50 per bracket if Ross purchase the brackets in lots of 1000. After analyzing the cost of the various options for obtaining the brackets, Ross White recognizes that although he knows the lead time is 2 days, the average daily demand usually varies. Ross has kept careful records and has determined that the average daily demand is normally distributed with a standard deviation of 2.5 units. If Ross would like to maintain a service level of 90 %,…arrow_forwardCorry Corporation purchases 1,200,000 unit per year of one component. The Fixed Cost per order is $25. The annual carrying cost of the item is 27% of its $2 cost. Show Computations and Explanations. Determine the EOQ under each of the following conditions: A. Using the same data above, compute the EOQ. (Format: 11,111) B. What if the order cost is zero, what is the EOQ? (Format: 11,111)arrow_forwardWilliam Beville's computer training school, in Richmond, stocks workbooks with the following characteristics: Demand D 20,000 units/year Ordering cost S $23/order Holding cost H $3/unit/year Part 2 a) The EOQ for the workbooks is ________ (round your response to the nearest whole number). Part 3 b) What are the annual holding costs for the workbooks? $________ (round your response to the nearest whole number). Part 4 c) What are the annual ordering costs? $_________ (round your response to the nearest whole number).arrow_forward
- 3. Southeastern Bell stocks a certain switch connector at its central warehouse for supplying field service offices. The yearly demand for these connectors is 15,000 units. Southeastern estimates its annual holding cost for this item to be $24 per unit. The cost to place and process an order from the supplier is $75. The company operates 300 days per year, and the lead time to receive an order from the supplier is 2 working days. Part 2 a) What is the economic order quantity? _____ units (round your response to the nearest whole number). b) What are the annual holding costs? $_______ (round your response to the nearest whole number). c) What are the annual ordering costs?_______ $(round your response to the nearest whole number). d) What is the reorder point?_______ units (round your response to the nearest whole number).arrow_forwardGrey Wolf Lodge is a popular 500-room hotel in the North Woods. Managers need to keep close tabson all room service items, including a special pine-scented bar soap. The daily demand for the soap is275 bars, with a standard deviation of 30 bars. Ordering cost is $10 and the inventory holding cost is$0.30/bar/year. The lead time from the supplier is 5 days, with a standard deviation of 1 day. The lodgeis open 365 days a year.a. What is the economic order quantity for the bar of soap?b. What should the reorder point be for the bar of soap if management wants to have a 99 percentcycle-service level?c. What is the total annual cost for the bar of soap, assuming a Q system will be used?arrow_forwardThe Gentry Garden Center sells 120,000 bags of lawn fertilizer annually. The optimal safety stock (which is on hand initially) is 1,000 bags. Each bag costs the firm $1.50, the inventory carrying cost is 20%, and the cost of placing an order with its supplier is $20. a. What is the Economic Ordering Quantity? b. What is the total Inventory cost with the safety stock? c. How often must the company order?arrow_forward
- Purchasing and Supply Chain ManagementOperations ManagementISBN:9781285869681Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. PattersonPublisher:Cengage Learning