Question

Question-2 You are working for company SEMO and you need 1000 tires per year. The cost of each tire is exactly $78. Ordering cost is given as $100 per order and carrying cost is 40% of per unit cost. (The lead time is 5 days) a) Calculate the EOC b) Calculate the REORDER point

Answer 1

Annual demand (D) = 1000 tires

Ordering cost (S) = $100

Carrying cost (H) = 40% of cost = 40% of $78 = $31.2

Lead time (L) = 5 days

Assuming 365 days per year, Average daily demand (d) = D / 365 = 2.74 tires

a) EOQ = Sqrt of (2DS / H)

= sqrt of [(2x1000x100) / 31.2]

= sqrt of (200000/31.2)

= 80.06 or rounded to 80 tires

b) Reorder point = d x L = 2.74 x 5 = 13.7 or rounded to 14 tires