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 comma 100 units. Southeastern estimates its annual holding cost for this item to be ​$23 per unit. The cost to place and process an order from the supplier is ​$77. The company operates 300 days per​ year, and the lead time to receive an order from the supplier is 3 working days. ​a) What is the economic order​ quantity? nothing units ​(round your response to the nearest whole​ number). ​b) What are the annual holding​ costs? ​$ nothing ​(round your response to the nearest whole​ number). ​c) What are the annual ordering​ costs? ​$ nothing ​(round your response to the nearest whole​ number). ​d) What is the reorder​ point? nothing units ​(round your response to the nearest whole​ number).

Answer 1

A) economic order quantity ( order quantity model that will minimize the total holding cost and ordering costs ) =
`√(3*1500*77/23)` =
`√(15065.21739)` = 122. 74 ≈ 122 ( optimal ordering quantity ) units

B) Annual holding cost = 23 * 122 / 2 = $1403

C ) Annual ordering costs = 1500/122 * 77 = $947

D ) The reorder point = daily demand * lead time = 50 * 3 = 150 units

Step-by-step explanation:

Annual demand for connectors : 1500

ordering cost ( cost to place and process an order ) : $77

annual holding cost per unit : $23

A) economic order quantity ( order quantity model that will minimize the total holding cost and ordering costs ) =
`√(3*1500*77/23)` =
`√(15065.21739)` = 122. 74 ≈ 122 ( optimal ordering quantity ) units

B) Annual holding cost = 23 * 122/2 = $1403

C ) Annual ordering costs = 1500 / 122 * 77 = $946.72 ≈ $947

D ) The reorder point = daily demand * lead time = 50 * 3 = 150 units

daily demand = 1500 / 300 = 50

lead time = 3