Question

Sams Job Shop buys one part- Tegdiws for use in its production system. The parts are needed throughout the entire 365-day year. Tegdiws are used at a relatively constant rate and are ordered whenever the remaining quantity drops to the reorder level. Data for the product is as follows:
ITEM TEGDIW WIDGET
Annual demand 10,000 5,000
Holding cost (% of item cost) 20% 20%
Setup or order cost $ 150.00 $ 25.00
Lead time 4 weeks 1 weeks
Safety stock 55 units 5 units
Item cost $ 10.00 $ 2.00
Required:
What is the inventory control system for Tegdiws? That is, what is the reorder quantity and the reorder point for Tegdiws?

Answer 1

Answer:

The inventory control system for Tegdiws is 1224.74 Units, the re-order point for Tegdiws is 824.24 Units.

The economic order quantity is also called the inventory control system for Tegdiws.

Explanation:

Solution

Given that:

Now

For Tegdiws Company the following information is given below:

The Annual demand = 10,000

The cost of item = $10.00

The lead time (L)= 4 weeks

The safety cost =  55 units

The ordering cost (S)= $150.00

The holding cost (H) = 20%

The economic order quantity is referred to as the inventory control system for Tegdiws

Thus, we find the inventory control system for Tegdiws which is given below:

EOQ =√ 2DS/h

=√2*10000 *150/2

=1224.74 Units

The next step is to calculate the re-order point for Tegdiws company which is computed below:

R = dL + safety stock

Where

d = This is the demand done  weekly

which is,

d = 10000/52

=192.31

Thus,

R = (192.31 * 4) +55

= 120 + 11

=824.24 Units.