Question

about company, the purchasing operation 4 hours are need to process a purchase order, regardless of the quantity purchased. Salaries in the Purchasing Department average 12 dollar per hour, including employee benefits. a detailed analysis of 30 previous purchase orders showed that 400 dollar  was spent on calling , paper, and other consumables directly related to the ordering process and a holding cost of 15%

annual demand is 6000 units, and the plant operates 240 days per year, the company has a contract to purchase from the supplier at a cost of 40 dollar per unit, and it is using a policy of replenishing its inventory of compressors once a month.. Service level indicate that 0.7 stockouts per year is acceptable

1_find reorder cost ?

2_ find current annual total inventory cost under the company’s current policy

3_Find the optimal order quantity.

4_How much safety stock is recommended for the company to carry?

5_find optimal total annual inventory cost?

6_ How much savings does the Company achieve by implementing the optimal policy?

Answer 1

Please refer to the solution below.