Westside Auto purchases a component used in the manufacture of automobile generators directly from the supplier. Westside’s generator production operation, which is operated at a constant rate, will require 1000 components per month throughout the year (12,000 units annually). Assume that the ordering costs are $25 per order, the unit cost is $2.50 per component, and the annual holding costs are 20% of the value of the inventory. Westside has 250 working days per year and a lead time of 5 days. Answer the following inventory policy questions: a. What is the EOQ for this component? b. What is the reorder point? c. What are the total annual holding and ordering costs associated with your recommended EOQ?
Westside Auto purchases a component used in the manufacture of automobile generators directly from the supplier. Westside’s generator production operation, which is operated at a constant rate, will require 1000 components per month throughout the year (12,000 units annually). Assume that the ordering costs are $25 per order, the unit cost is $2.50 per component, and the annual holding costs are 20% of the value of the inventory. Westside has 250 working days per year and a lead time of 5 days. Answer the following inventory policy questions: a. What is the EOQ for this component? b. What is the reorder point? c. What are the total annual holding and ordering costs associated with your recommended EOQ?
Purchasing and Supply Chain Management
6th Edition
ISBN:9781285869681
Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Chapter16: Lean Supply Chain Management
Section: Chapter Questions
Problem 10DQ: The chapter presented various approaches for the control of inventory investment. Discuss three...
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- Westside Auto purchases a component used in the manufacture of automobile generators directly from the supplier. Westside’s generator production operation, which is operated at a constant rate, will require 1000 components per month throughout the year (12,000 units annually). Assume that the ordering costs are $25 per order, the unit cost is $2.50 per component, and the annual holding costs are 20% of the value of the inventory. Westside has 250 working days per year and a lead time of 5 days. Answer the following inventory policy questions:
a. What is the EOQ for this component?
b. What is the reorder point?
c. What are the total annual holding and ordering costs associated with your recommended EOQ?
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