Question

George Heinrich uses 1,500 per year of a certain subassembly that has an annual holding cost of $45 per unit. Each order placed costs George $150. He operates 300 days per year and has found that an order must be placed with his supplier 6 working days before he can expect to receive that order. The economic order quantity is units (enter your response as a whole number). The annual holding cost is $ (enter your response as a whole number). The annual ordering cost is $ (enter your response as a whole number). The reorder point is units (enter your response as a whole number).

Answer 1

Answer:

a. 100 units

b. $2,250

c $2,250

d. 30 units

Explanation:

a. The estimation of the economic order quantity is presented below:

= $\sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}$

= $\sqrt{\frac{2\times \text{\1,500}\times \text{\ 150}}{\text{\ 45}}}$

= 100 units

b. The annual holding cost would be

= Economic order quantity ÷ 2  × annual holding cost per unit

= 100 units ÷ 2 × $45

= $2,250

The Economic order quantity ÷ 2  is also known as average inventory

c. The annual ordering cost would be

= Annual demand ÷ economic order quantity  × ordering cost per order

= 1,500 ÷ 100 × $150

= $2,250

The Annual demand ÷ economic order quantity is also known as number of orders

d. The reorder point would be

= Annual demand ÷ total number of days in a year × working days

= 1,500 ÷ 300 days × 6 working days

= 30 units