Question

The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volume assemblies, the XO-01, has an estimated annual demand of 8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $20 per year. The company operates 250 days per year. What is the time between two consecutive orders (in days), in the situation when inventory costs are minimized for the XO-01

Answer 1

Answer:

6.25 days

Explanation:

In order to compute the time first we have to find out the economic order quantity and the total number of orders in a year which is shown below:

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

$= \sqrt{\frac{2\times \text{8,000}\times \text{\ 50}}{\text{\ 20}}}$

= 200 units

Now the total number of years in a year is

= Annual demand ÷ economic order quantity

= 8,000 ÷ 200 units

= 40 orders

And, the time between two consecutive orders is

= 1 ÷ 40 orders × 250 days

= 6.25 days