Practice question
Ace Ltd. manufactures a product and the following particulars are collected for the year ended March, 2013:
• Monthly demand (units) 25000
• Cost of placing an order (`) 10000
Annual carrying cost (` per unit) 1500
Normal usage (units per week) 5000
Minimum usage (units
• Maximum usage (unit
New Note
Re-order period (weeks) 4-6
Based on the given information, calculate the economic order quantity (EOQ) for Ace Ltd. in order to determine the optimal order quantity that minimizes total inventory costs. Use the formula:
EOQ = sqrt((2 * D * S) / H)
where:
- D = Annual demand (25000 * 12)
- S = Ordering cost (10000)
- H = Holding cost per unit (1500)
Calculate the minimum and maximum usage in units per week using the given information. Then, calculate the re-order level in units to determine when to place a new order for the product during the re-order period of 4-6 weeks.
Additionally, analyze the impact of changing the re-order period from 4-6 weeks to a different range on the company's inventory management and costs. Determine whether changing the re-order period could be beneficial for the company or not.