Question

widget co. has the following data available relative to its investment in materials

Answer 1

Solution:-

Number of units of material used annually 20,000

Number of workdays in a year 250

Cost of placing an order $20

Annual carrying cost per unit of inventory $5

Requirement 1. Compute the economic order quantity (please show your work):-

2*20*20000/5 = 160,000 sq. = 400

Requirement 2. Give some examples of order costs and carrying costs:-

Order costs:preparing order, receiving ticket, processing the supplier's invoices, remitting the payment to the supplier

Carrying costs Money tied up in inventory, storage cost, taxes, inventory, insurance premium

Requirement 3. Using the above data, compute the order size that results in the minimum total order and carrying cost:-

Order size	Number of orders	Total order cost	Average inventory	Total carrying cost	Total order and carrying cost
100	200	4000	50	250	4250
200	100	2000	100	500	2500
300	67	1340	150	750	2090
400	50	1000	200	1000	2000
500	40	800	250	1250	2050
600	33	660	300	1500	2160
700	29	580	350	1750	2330
800	25	500	400	2000	2500

Requirement 4. If the company requires a safety stock of 200 units and has an anticipated lead time of 5 days, what is the order point:-

(1/2* 400) + 200 = 400 in safety stock that is required

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