Question

Question 3 A company manufactures five sizes of screwdrivers. Ordering costs and carrying costs are not known, but it is known that they are the same for each size. At present, each size is produced four times per year. If the demand for each size is as follows, calculate order quantities to minimize inventories and maintain the same total number of runs. Calculate the old and new average inventories. Is there any change in the number of orders per year? Item Annual Usage Present PresentO A New orders per Lot Sizel Size year Lot New Orders per = KO A year A N = A /Q $12,100 $8,100 $3,600 4 $1,600 5 $225 Totals Average inventory

this is the answer , just explained how to get it

Answer 1

IN THIS QUESTION : ANNUAL USAGE AND no. of time of Production i.e. 4 is given hence the table has been arrived as under :-

1. Annual usage - given in the question.

2. Present order per year - given in the question.

3. Present Lot size = Annual usage / present order per year

4.. $\sqrt{AO}$ = SQUARE ROOT OF ANNUAL USAGE For example 110 is the square root of 12100

5. K = sum of all  $\sqrt{AO}$ divided by sum of no. of orders for the year.

6. New lot size is the step 5 multiplied by step 4 above.

7. New orders per year = annual usgae (as given in 1) divided by New lot size (Calculated as 6)

8. Average inventory figure is the sum of lot size / no. of items