Question

Southeastern Bell stocks a certain switch connector at its central warehouse for supplying field service offices. The yearly demand for these connectors is 14 comma 200 units. Southeastern estimates its annual holding cost for this item to be ​$23 per unit. The cost to place and process an order from the supplier is ​$74. The company operates 300 days per​ year, and the lead time to receive an order from the supplier is 3 working days.

a) Find the economic order quantity.

b) Find the annual holding costs.

c) Find the annual ordering costs.

d) What is the reorder point?

Answer 1

Answer:

a) 302.28

b)3,476.23

c)3,476.23

d) 142 units

Explanation:

$Q_{opt} = \sqrt{\frac{2DS}{H}}$

Where:

D = annual demand = 14,200

S= setup cost = ordering cost = 74

H= Holding Cost = 23.00

$Q_{opt} = \sqrt{\frac{2(14,200)(74)}{23}}$

EOQ = 302.2811821 = 302.28

holding cost:

average inventory x holdign cost

302.28 / 2 x $23 = 3476.233594

ordering cost:

order per year x cost per order

14.200 / 302.28 x $74 = 3,476.233594

14,200 / 300 = 47.33 units per day

47.33 x 3 = 141.99 reorder point