Question

The Warren W. Fisher Computer Corporation purchases 8,000 transistors each year as components in computers. The unit cost of each transistor is $10 and the cost of carrying one transistor in inventory for a year is $3. Ordering cost is $30 per order.Assuming that Fisher operates on a 200-day working year, compute:a)The optimal order quantityb)The expected number of orders placed each yearc)The expected time between orders

Answer 1

Answer:

a) 400 units;

b) 20 orders;

c) 10 days.

Explanation:

Please find the below for detailed calculations and explanation:

Denote D = Annual Demand = 8,000 units;

K = Orderding cost = $30;

h = Holding cost = $3.

a) We calculate the economic order quantity (EOQ) which is also the optimal order quantity, with the formula as below:

EOQ = Square ( 2*D*K/h) = Square(2*8,000*30/3) = 400 units.

b) Expected number of orders placed each year = Annual Demand / EOQ = 8,000/400 = 20 orders.

c) Expected time between orders = Number of working day per year / Number of orders placed each year = 200/20 = 10 days.