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Refer to Exercise 20.10. Assume the economic lot size for small casings is 120,000 and that of the large casings is 40,000. Morrison Manufacturing sells an average of 9,600 small casings per workday and an average of 3,200 large casings per workday. It takes Morrison two days to set up the equipment for small or large casings. Once set up, it takes three workdays to produce a batch of small casings and five days for large casings. There are 250 workdays available per year. Required: 1. What is the reorder point for small casings? Large casings? 2. Using the economic order batch size, is it possible for Morrison to produce the amount that can be sold of each casing? Does scheduling have a role here? Explain. Is this a push- or pull-through system approach to inventory management? Explain.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 20, Problem 12E
Textbook Problem
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Refer to Exercise 20.10. Assume the economic lot size for small casings is 120,000 and that of the large casings is 40,000. Morrison Manufacturing sells an average of 9,600 small casings per workday and an average of 3,200 large casings per workday. It takes Morrison two days to set up the equipment for small or large casings. Once set up, it takes three workdays to produce a batch of small casings and five days for large casings. There are 250 workdays available per year.

Required:

  1. 1. What is the reorder point for small casings? Large casings?
  2. 2. Using the economic order batch size, is it possible for Morrison to produce the amount that can be sold of each casing? Does scheduling have a role here? Explain. Is this a push- or pull-through system approach to inventory management? Explain.

1.

To determine

Ascertain the reorder point for small casings and for large casings.

Explanation of Solution

Economic order quantity (EOQ): Economic order quantity is ideal order quantity that the company should purchase the inventory with the ideal level. The economic order quantity (EOQ) approach assumes that some inventory must be held for future production. The main objective of the EOQ is to balance the ordering costs against the holding costs of inventory.

For small casings:

Reorder point=Lead time×average daily sales=(2 days+3 days)

2.

To determine

Describe whether it is possible for company M to produce the amount that could be sold of each casing and state whether scheduling have a role here, if so explain. State whether it is a push- or pull-through system approach to inventory management and explain the reason behind it.

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Chapter 20 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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