Question

eDook o The A&M Hobby Shop carries a line of radio-controlled model racing cars. Demand for the cars is assumed to be constant at a rate of 17 cars per month. ordering costs are approximately S11 per order, regardless of the order size. The annual holding cost rate is 15%. a. Determine the economic order quantity and total annual cost under the assumption that no backorders are permitted. If t required, round your answers to two decimal places 25.50 Total Cost-sim" b. Using a $41 per-unit per-year backorder cost, determine the minimum cost inventory poliay and total annual cost for the model racing cars if required, round your answers to two decimal places - 297 Total Cost 638.07 year. If required, round your answer to two decimal places Length of backorder period a he sun huwmber or cays t customer would haet wit frbkrer nder the pcy in part (b? Assume that the Hoby Shop300 days per days d Would you recommend a no-backorder or a backorder inventory policy for this product? Explain. If required, round your answers to two decimal places Recommendation would be ckrinventory policy, snce the maximum wait is only 0nd the cost savings i 42. e. If the lead time is six days, what is the reorder point for both the no-backorder and backorder inventory policies? If required, round your answers to two decimal places Reorder point for no-backorder inventory policy is .00 Reorder point for backorder inventory policy is (0.33

Answer 1

Answer:

Demand of Car = 17 Cars per month

Annual Demand of Cars = 17 x 12 = 204 Cars

Cost of a Car = $46

Ordering Cost per Order = $11

Holding Cost per Unit per annum = 15% x $46 = $6.9

(i) Economic Order Quantity (EOQ)

EOQ = [ (2 x Annual Demand x Ordering Cost per Order) / Holding Cost per unit per annum ]^1/2

= [ (2 x 204 x 11) / $6.9 ] ^1/2

=25.503 or 26Cars

Economic Order Quantity = 26 Cars

(ii) Total Annual Cost = Total Cost of Car + Total Ordering Cost + total Holding cost

Total Cost of Car = 204 Cars x $46 = $9384

Total Ordering Cost = No. of Order x Ordering Cost per Order

No. of Orders = Annual Demand / EOQ = 204 / 26 = 7.84 or we can say 8 Orders

Total Ordering Cost = 8 orders x $11 = $88

Total Holding Cost = ½ x EOQ x Holding Cost per unit per annum = ½ x 26 x $6.9 = $89.7

Total Annual Cost = $9384 + $88 + $89.7 = $9561.7

It is to be noted that at economic order quantity total ordering cost equals to total holding cost. Since there is only 6.9 orders and we assumed it in nearest whole number i.e. 7 orders. Therefore total cost of ordering and holding is little bit difference.