Problem 10-09 (Algorithmic) Cress Electronic Products manufactures components used in the automotive industry. Cress purchases parts for use in its manufacturing operation from a variety of different suppliers. One particular supplier provides a part where the assumptions of the EOQ model are realistic. The annual demand is 5,300 units, the ordering cost is $70 per order, and the annual holding cost rate is 25%.

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abiolataiwo2015 abiolataiwo2015 · Answer 1 · 2022-07-12T21:10:06+02:00

The economic order quantity is 385 and reorder point is 254.

a. Economic order quantity (EOQ)

EOQ=√2×D×C÷H

Where:

D =Annual Demand

S = Cost of Ordering

H=Holding cost

Hence:

EOQ=√2×5300×70÷.25×20

EOQ=√742,000÷5

EOQ=√148,400

EOQ=385

b. Reorder point

Reorder point=5300/250×12 days

Reorder point=254

c. Reorder point

Reorder point=5300/250×35 days

Reorder point=742

d. Reorder point

Reorder point=742-385

Reorder point=357

Therefore the economic order quantity is 385 and Reorder point is 254.

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The complete question is:

a. If the cost of the part is $20 per unit, what is the economic order quantity?

b. Assume 250 days of operation per year. If the lead time for an order is 12 days, what

is the reorder point?

c. If the lead time for the part is seven weeks (35 days), what is the reorder point?

d. What is the reorder point for part (c) if the reorder point is expressed in terms of the inventory on hand rather than the inventory position?