To calculate the economic order quantity, we can use the formula:
EOQ = sqrt((2DS)/H)
where D is the annual demand, S is the setup cost, and H is the holding cost.
Given:
Annual demand (D) = 250,000 strands
Setup cost (S) = $200
Holding rate (H) = 20% = 0.2
Cost per LED light strand = $20
Substituting the values in the formula, we get:
EOQ = sqrt((2 x 250,000 x 200)/0.2) = 10,000
Therefore, the economic order quantity is 10,000 strands.
To calculate the reorder point (ROP), we can use the formula:
ROP = dL
where d is the demand rate and L is the lead time.
Given:
Demand rate (d) = 250,000/360 = 694.44 strands/day
Lead time (L) = 3 days
Substituting the values in the formula, we get:
ROP = 694.44 x 3 = 2083.33
Therefore, the reorder point is 2083 strands.
To calculate the annual purchase cost, we can use the formula:
Annual purchase cost = D x cost per unit
Given:
Annual demand (D) = 250,000 strands
Cost per LED light strand = $20
Substituting the values in the formula, we get:
Annual purchase cost = 250,000 x $20 = $5,000,000
Therefore, the annual purchase cost is $5,000,000.
To calculate the annual holding cost, we can use the formula:
Annual holding cost = Q/2 x H
where Q is the order quantity and H is the holding cost.
Given:
Order quantity (Q) = EOQ = 10,000 strands
Holding rate (H) = 20% = 0.2
Substituting the values in the formula, we get:
Annual holding cost = 10,000/2 x 0.2 x $20 = $2,000
Therefore, the annual holding cost is $2,000.
To calculate the annual order cost, we can use the formula:
Annual order cost = D/Q x S
Given:
Annual demand (D) = 250,000 strands
Order quantity (Q) = EOQ = 10,000 strands
Setup cost (S) = $200
Substituting the values in the formula, we get:
Annual order cost = 250,000/10,000 x $200 = $5,000
Therefore, the annual order cost is $5,000.
To calculate the total annual inventory cost, we can use the formula:
Total annual inventory cost = Annual purchase cost + Annual holding cost + Annual order cost
Given:
Annual purchase cost = $5,000,000
Annual holding cost = $2,000
Annual order cost = $5,000
Substituting the values in the formula, we get:
Total annual inventory cost = $5,000,000 + $2,000 + $5,000 = $5,007,000
Therefore, the total annual inventory cost is $5,007,000.
If the LED supplier imposes a minimum order quantity of 25,000 strands, the economic order quantity would change. We would need to recalculate the EOQ using the new minimum order quantity. If the new EOQ is greater than 25,000, we would need to order the minimum quantity of 25,000 strands. If the new EOQ is less than 25,000, we would need to order the EOQ. The total annual inventory cost would also change based on the new order quantity and the associated costs.