Question

In: Operations Management

Assistants, Inc. uses approximately 28,800 microchips annually. The chips are used at a steady rate during...

Assistants, Inc. uses approximately 28,800 microchips annually. The chips are used at a steady rate during the 250 workdays that the plant operates. The price of each chip is $10.00 and the annual carrying cost is $2.00 per unit per year. The ordering cost is $50. Due to poor supplier delivery, the company has decided to maintain a safety stock (SS) of 1500 units. The lead time for ordering the chips is ten days.

Answer the following questions.

a) What is the average inventory level of chips?   units


b) What is the maximum inventory level of chips?   units


c) What is the annual ordering cost? $


d) What is the annual carrying cost? $


e) What is the reorder point in units?   units

Solutions

Expert Solution

Given Data,

[ Ch] Holding Cost = USD 2 per unit per Year,

[Co ]Ordering Cost = USD 50 Per Order,

So, [ D ]Annual Demand = 28800 units

Formula for Optimal Order Quantity =

Square Root of [( 2 X D X Co)/ Ch],

Or, Optimal Order Quantity = Square Root of [ (
2 X 28800 X 50)/2]

Or, Optimal Order Quantity = Square Root of [ 1440000] =1200 units

Number of Order = Annual Demand / Optimal Order Quantity

Or, Number of Order = 28800 / 1200=24

Total Annual Ordering Cost = Number of Order X Ordering Cost per Order = 24 X USD 50= 1200

Total Annual Holding Cost = Average Units X Holding Cost per unit per Year

Or, Total Annual Holding Cost = (1200/2) X2 = 1200

Total Annual Purchasing Cost = Annual demand X Purchase cost per Unit = 28800X10 = 288000

Total Annual Cost = Total Annual Ordering Cost + Total Annual Holding Cost + Total Annual Purchasing Cost

Or, Total Annual Cost = 1200+1200+288000=29040

a) What is the average inventory level of chips?= (1200/2)=600  units


b) What is the maximum inventory level of chips? = 1200 units


c) What is the annual ordering cost? $1200


d) What is the annual carrying cost? $1200

e) Formula for Reorder Point = (Average Daily demand X Given Lead Time)+ safety stock=((28800/250)*10)+1500=2652 units

keosha answered 1 hour ago
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