Your company uses 1,500 per year of a certain subassembly that has an annual holding cost of $45 per unit. Each order placed costs $150. The company operates 300 days per year and has found that an order must be placed with the supplier 6 working days before it can expect to receive that order. For this subassembly, find the following:
A. The economic order quantity 1500/45 = 33.3
B. The annual holding cost 33.3/2 = 16.50 (45) = 742.50
C. The annual ordering cost 1500/33.3 = 45.04 (742.50) =33,442.2
D. The reorder point 1500/300 = 5(6) 30
Again, I am kinder lost.
No problem! I'll break it down for you.
A. To find the economic order quantity (EOQ), you need to use the formula EOQ = √((2DS)/H), where:
- D is the demand (number of units) per year (1,500 in this case)
- S is the order cost (per order) ($150 in this case)
- H is the holding cost per unit per year ($45 in this case)
Plugging in the values, we get:
EOQ = √((2 * 1,500 * 150) / 45) ≈ 33.3
Therefore, the economic order quantity is approximately 33.3 units.
B. The annual holding cost is calculated by taking half of the EOQ and multiplying it by the holding cost per unit per year. So, (33.3 / 2) * 45 = $742.50.
Therefore, the annual holding cost is $742.50.
C. The annual ordering cost can be calculated by dividing the total annual demand (1,500 units) by the economic order quantity (33.3 units) and then multiplying it by the order cost ($150). So, (1,500 / 33.3) * $150 = $6,742.50.
Therefore, the annual ordering cost is $6,742.50.
D. To calculate the reorder point, you can use the formula reorder point = (demand per day * lead time) + safety stock. In this case:
- The demand per day is the total annual demand divided by the number of working days per year (1,500 / 300 = 5 units per day)
- The lead time is the number of working days it takes to receive the order from the supplier (6 days in this case)
So, the reorder point = (5 * 6) + safety stock. The safety stock is an extra buffer that should be maintained to account for variability in demand or delays in the supply chain.
The formula doesn't provide the safety stock value, but it's usually determined based on factors like desired service level or historical demand variability.
In this case, we can say the reorder point is 5 * 6 = 30 units. However, keep in mind that it does not include the safety stock, which you would need to calculate separately based on specific factors or requirements.
I hope this helps! Let me know if you have any other questions.