Question

A manufacturer has a production facility that requires 16,143 units of component JY21 per year. Following a long-term contract, the manufacturer purchases component JY21 from a supplier with a lead time of 5 days. The unit purchase cost is $11.9 per unit. The cost to place and process an order from the supplier is $137 per order. The unit inventory carrying cost per year is 10.4 percent of the unit purchase cost. The manufacturer operates 250 days a year. Assume EOQ model is appropriate. If the manufacturer uses a constant order quantity of 2,044 units per order, what is the annual holding cost? Note: It is important to know that the manufacturer does not really use the optimal order quantity. Use at least 4 decimal places.

Answer 1

The annual holding cost for the manufacturer using a constant order quantity of 2,044 units is approximately $1,264.98, calculated by taking the average inventory level multiplied by the unit purchase cost and the inventory carrying cost percentage.

Step-by-step explanation:

To calculate the annual holding cost for the manufacturer using a constant order quantity of 2,044 units per order, we can use the information given about the inventory carrying cost percentage and the unit purchase cost.

The annual holding cost is calculated by taking the average inventory level (which is half of the order quantity since we assume a constant and continuous usage rate) multiplied by the unit purchase cost and then by the inventory carrying cost percentage.

First, we calculate the average inventory:

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• Average Inventory = Order Quantity / 2 = 2,044 units / 2 = 1,022 units

Next, determine the inventory carrying cost per unit:

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• Inventory Carrying Cost per Unit = Unit Purchase Cost × Inventory Carrying Cost Percentage
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• Inventory Carrying Cost per Unit = $11.9 × 10.4% = $1.2376per unit

Finally, calculate the annual holding cost:

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• Annual Holding Cost = Average Inventory × Inventory Carrying Cost per Unit
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• Annual Holding Cost = 1,022 units × $1.2376 = $1,264.9792

Therefore, the annual holding cost for the manufacturer using a constant order quantity of 2,044 units per order is approximately $1,264.98.