In: Other
The A&M Hobby Shop carries a line of radio-controlled model racing cars. Demand for the cars is assumed to be constant at a rate of 40 cars per month. The cars cost $60 each, and ordering costs are approximately $15 per order, regardless of the order size. The annual holding cost rate is 20%.
Demand per month= 40 cars
Annual Demand (D)= 12*40 = 480
Fixed Cost per order (K)= 15
Holding Cost= 20% of cost= 60 *0.2 = 12
a. Economic Order Quantity=
= √(2*480*15)/12
=34.64 ~ 35
Total Cost =P*D+K(D/EOQ)+h(EOQ/2) P= Cost per unit
= 60*480+ 15(480/35) + 12(35/2)
= 28800+ 205.71+ 210
=$29215.71
b. Backorder Cost (b)= $45
Qbo= Q* × √( b+h/ h)
= 35*√(12+45/ 45)
= 35* 1.12
=39.28 ~ 39
Shortage (S)= Qbo * (K/K+b)
= 39* (15/15+45)
= 39* 0.25
= 9.75
Total Cost Minimum=( bS2/ 2Qbo) + P (Qbo- S)2/2Qbo + K(D/Qbo)
=45* 9.752 / 2* 392 + 60 (39-9.75)2/ 2* 392 + 15 ( 480/39)
= 1.40+ 21.9.+ 184.61
=$207.91
12*40 = 480
60 *0.2 = 12