Question

Your company uses 1,500 per year of a certain subassembly that has an annual holding cost of $45 per unit. Each order placed costs $150. The company operates 300 days per year and has found that an order must be placed with the supplier 6 working days before it can expect to receive that order. For this subassembly, find the following:

a. The economic order quantity

b The annual holding cost

c The annual ordering cost

d The reorder point

Answer 1

The economic order quantity is 54 units, the annual holding cost is $1,215, the annual ordering cost is $4,167, and the reorder point is 30 units.

Step-by-step explanation:

In order to find the economic order quantity (EOQ) for the subassembly, we can use the EOQ formula: EOQ = √(2SD/H), where S is the annual demand, D is the annual holding cost, and H is the annual holding cost per unit. In this case, S = 1500, D = $45, and H = $45. Plugging these values in, we get EOQ = √(2*1500*45/45) = √(3000) = 54 units. So, the economic order quantity is 54 units.

The annual holding cost can be calculated as EOQ/2 * H. In this case, H = $45 and EOQ = 54 units. Plugging these values in, we get the annual holding cost = 54/2 * 45 = $1,215.

The annual ordering cost can be calculated as S/EOQ * D, where S is the annual demand, EOQ is the economic order quantity, and D is the annual ordering cost. In this case, S = 1500, EOQ = 54 units, and D = $150. Plugging these values in, we get the annual ordering cost = 1500/54 * 150 = $4,167.

The reorder point can be calculated as the lead time demand, which is the annual demand divided by the number of working days in a year, multiplied by the lead time. In this case, the lead time is 6 working days, so the reorder point = (1500/300 * 6) = 30 units.