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Homework answers / question archive / Ross White's machine shop uses 2,500 brackets during the course of a year, and this usage is relatively constant throughout the year

Ross White's machine shop uses 2,500 brackets during the course of a year, and this usage is relatively constant throughout the year

Business

Ross White's machine shop uses 2,500 brackets during the course of a year, and this usage is relatively constant throughout the year. These brackets are purchased from a supplier 100 miles away for $15 each, and the lead time is 2 days. The holding cost per bracket per year is $1.50 (or 10% of the unit cost), and the ordering cost per order is $18.75. There are 250 working days per year.

What is the EOQ?

Given the EOQ, what is the average inventory? What is the annual inventory holding cost?

In minimizing cost, how many orders would be placed each year? What would be the annual ordering cost?

Given the EOQ, what is the total annual inventory cost (including purchase cost)?

What is the time between orders?

What is the ROP?

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Computation of the economic order quantity (EOQ):-

EOQ = (2*Demand*Ordering cost/Holding cost)^(1/2)

= (2*2500*18.75/1.50)^(1/2)

= 625000^(1/2)

= 250 units 

 

Computation of the average inventory:-

Average inventory = EOQ/2

= 250/2

= 125 units

 

Computation of the annual holding cost:-

Annual holding cost = (EOQ/2)*Holding cost

= (250/2)*$1.50

= $187.50

 

Computation of the number of orders:-

Number of orders = Demand/EOQ

= 2500/250

= 10

 

Computation of the annual ordering cost:-

Annual ordering cost = Number of order*Ordering cost per order

= 10*$18.75

= $187.50

 

Computation of the total annual inventory cost:-

Total annual inventory cost = Annual inventory holding cost + Annual ordering cost + Purchase cost

= $187.50+$187.50+(2500*$15)

= $375+$37,500

= $37,875

 

Computation of the time between orders:-

Time between orders = (365/10)-2

= 36.5-2

= 34.5 days

 

Computation of the reorder point (ROP):-

ROP = Lead time*Demand

= (2/365)*2500

= 13.70

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