Question

Southeastern Bell stocks a certain switch connector at its central warehouse for supplying field service offices. The yearly demand for these connectors is 15,700 units. Southeastern estimates its annual holding cost for this item to be ​$22 per unit. The cost to place and process an order from the supplier is ​$77. The company operates 300 days per​ year, and the lead time to receive an order from the supplier is 3 working days. ​a) What is the economic order​ quantity? ​b) What are the annual holding​ costs? ​ ​c) What are the annual ordering​ costs? ​ ​d) What is the reorder​ point?

Answer 1

Answer: See explanation

Step-by-step explanation:

​a) What is the economic order​ quantity? ​

This will be:

= ✓[(2 × Demand × Ordering Cost)/(Holding Cost)]

= ✓(2 × 15700 × 77 / 22)

= ✓109900

= 331 approximately

b) What are the annual holding​ costs? ​ ​

Holding Cost = Average Inventory × Holding cost for item

= 331/2 × $22

= $3641

c) What are the annual ordering​ costs? ​

This will be calculated as:

= (Annual Demand/EOQ)*Ordering Cost

= (15700 / 331) × 77

= $3652

​d) What is the reorder​ point?

Reorder point = Daily Demand × Lead Time

= (15700/300) × 3

= 157 units