Question

The Cowboy Saddle Company manufactures plastic saddles that are used in the assembly process of their Mr. Ed doll. The firm desires to control inventory levels so as to minimize the sum of holding and order costs. Annual demand is 4000 units, and the item costs $25 per unit. It costs the firm $15 to place an order. The firm estimates its yearly inventory carrying costs at 10%. The lead-time for the product is 5 working weeks. Assume that there are 50 weeks in the work year and 5 working days per week.

i) Using the data above, What will be the time between orders (in working days) if the Cowboy Saddle Company ordered 400 units each time?

ii) What will be the total annual order cost if the Cowboy Saddle Company ordered 400 units each time. Use the data above?

Answer 1

time between orders 25 working days

yearly ordering cost: $150

Step-by-step explanation:

The annual demand is 4,000 units if order size is 400 units there will be 10 orders per year

Given a year of 50 weeks: every 5 weeks an order will be placed.

As each week has 5 working days that would mean every 25 working days

Then, total order cost:

each order cost $15 to place as there are 10 order per year it will be $150 ordering cost.