Question

Southeastern Bell stocks a certain switch connector at its central warehouse for supplying field service offices. The yearly demand for these connectors is 15 comma 000 units. Southeastern estimates its annual holding cost for this item to be ​$25.00 per unit. The cost to place and process an order from the supplier is ​$75.00. The company operates 300 days per​ year, and the lead time to receive an order from the supplier is 2 working days. ​a) What is the economic order​ quantity? 300 units ​(round your response to the nearest whole​ number). ​b) What are the annual holding​ costs? ​$ 3750 ​(round your response to the nearest whole​ number). ​c) What are the annual ordering​ costs? ​$ 3750 ​(round your response to the nearest whole​ number). ​d) What is the reorder​ point? 100 units ​(round your response to the nearest whole​ number).

Answer 1

Answer:

a. 300 units

b. $3,750

c. $3,750

d. 100 units

Explanation:

a. The computation of the economic order quantity is shown below:

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

= $\sqrt{\frac{2\times \text{15,000}\times \text{\ 75}}{\text{\ 25}}}$

= 300 units

The number of orders would be equal to

= Annual demand ÷ economic order quantity

= 15,000 ÷ 300 units

= 50 orders

And, The average inventory would equal to

= Economic order quantity ÷ 2

= 300 units ÷ 2

= 150 units

The total cost of ordering cost and carrying cost equals to

b. Carrying cost = average inventory × carrying cost per unit

= 150 units × $25

= $3,750

c. Ordering cost = Number of orders × ordering cost per order

= 50 orders × $75

= $3,750

d. The reorder point would be

= Annual demand ÷ number of days × lead time

= 15,000 ÷ 300 days × 2 working days

= 100 units