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QUESTION

1. The XYZ Company purchases a component used in the manufacturing of automobile
generators directly from the supplier. XYZ’s generator production operation, which is
operated at a constant rate, will require 1,000 components per month throughout the
year. If ordering cost are \$25.00 per order,unit cost is \$2.50 per component,and
annual inventory holding cost are charged at 20%, answer the following inventory
policy question for XYZ.

a. What is a EOQ for this component?
b. What the cycle time in month?
c. What are the total annual inventory holding and ordering associated with your
recommended EOQ?
d. Assuming 250 days of operation per year and a lead time of 5 days,what is the
reorder point for the XYZ Company?

Asnwer

00 a. Cycle time in month Order (N) = = = 10.50 Setup / Order cost (S) : \$25.9545 times T= = = 1.Demand (D) : 1000 per month = 1000 x 12 = 12000 units per year Holding/ carrying cost per year (H) : \$ 2.45 unit b. EOQ = √ =√ = √ EOQ = 1095.50 x 20% = \$ 0.1 month .

Total annual inventory holding and ordering TC = [ ] [ =[ =[ ] ] = \$ 547. Recorder point (ROP) D = = = 48 ROP = 48 x 5 = 240 units ] [ [ ] ] .c.72 d.