Question

Southeastern Bell stocks a certain switch connector at its central warehouse for supplying field service offices. The yearly demand for these connectors is 15,100 units. Southeastern estimates its annual holding cost for this item to be ​$24 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 2 working days.

a) Find the economic order quantity.
b) Find the annual holding costs.
c) Find the annual ordering costs.
d) What is the reorder point?

Answer 1

a) The economic order quantity is 311 units

b) The annual holding costs is $3,600

c) The annual ordering costs is $3,875

d) The reorder point is 100 units

Step-by-step explanation:

a. In order to calculate the economic order quantity we would have to use the following formula:

economic order quantity=√(2×15,100×77/24)=311 units

b. To calculate the annual holding costs we would have to use the following formula:

annual holding costs=$24×300/2=$3,600

c. To calculate the the annual ordering costs we would have to use the following formula:

annual ordering costs=15,100×$77/300=$3,875

d. To calculate the reorder point we would have to use the following formula:

demand per day=15,100/300=50 units

reorder point=50×lead time=50×2=100 units