Question

1) Consider the following requirements for a certain product.

Period	1	2	3	4	5	6	7	8
Gross requirements	0	200	200	500	0	400	0	400

Beginning inventory = 300 units

Setup cost = $300 per setup

Lead time = 1 week

Holding cost = $5 per unit per week

(a) Develop the lot-for-lot MRP table - (complete table below).

(b) Calculate the total relevant costs.

Answer (Show all mathematical work):

a)

Period	1	2	3	4	5	6	7	8
Gross requirements
On hand beg period | 300
On hand end period
Net requirements
Order receipt
Order release

b) Total relevant costs = $?,???.

Answer 1

Question – a:

Period	1	2	3	4	5	6	7	8
Gross Requirements	0	200	200	500	0	400	0	400
On hand Beg Inventory (300)	300	300	100	0	0	0	0	0
On hand end period	300	100	0	0	0	0	0	0
Net Requirements	0	0	100	500	0	400	0	400
Order Receipt	0	0	100	500	0	400	0	400
Order Release		100	500	0	400	0	400

Gross Requirement is given.

On hand end inventory = on hand beg inventory + order receipts – gross requirements

Net Requirements = Gross Requirement – On hand beg inventory. (the positive values means we have to order that much quantity.) A negative value defines order receipt is not required.

Order receipt = net requirements

Order release = next period order receipt.

As we are following Lot-for-Lot, the order quantity is equal to the net requirement

Question – b:

The relevant cost = ordering cost + storing cost.

Ordering cost = number of orders * ordering cost per order

Number of orders = 4

Ordering cost per order = $300 per order

Holding cost = holding cost per unit*number of end inventory

End inventory is only for 2 period. Period 1 with 300 units and period 2 with 100 units

Holding cost per unit = $5 per week

Hence the holding cost = (300 + 100)*5 = 400*5 = $2000

Ordering cost = 4*300 = $1200

Hence total relevant cost = 2000 + 1200 = $3200

.

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