0 Lila Battle has determined that the annual demand for number 6 screws is 100,000 screws. Lila, who works in her brother’s hardware store, is in charge of purchasing. She estimates that it costs $10 every time an order is placed. This cost includes her wages, the cost of the forms used in placing the order, and so on. Furthermore, she estimates that the cost of carrying one screw in inventory for a year is one-half of 1 cent. Assume that the demand is constant throughout the year. How many number 6 screws should Lila order at a time if she wishes to minimize total inventory cost? a- EOQ=2×A×OC where A is Annual demand O is ordering cost C is Carrying Cost EOQ=2×100,000×100.005=400,000,000=20,000
6-20 Lila Battle has determined that the annual demand for number 6 screws is 100,000 screws. Lila, who works in her brother’s hardware store, is in charge of purchasing. She estimates that it costs $10 every time an order is placed. This cost includes her wages, the cost of the forms used in placing the order, and so on. Furthermore, she estimates that the cost of carrying one screw in inventory for a year is one-half of 1 cent. Assume that the demand is constant throughout the year.
How many number 6 screws should Lila order at a time if she wishes to minimize total inventory cost?
a-
EOQ=2×A×OC
where A is Annual demand
O is ordering cost
C is Carrying Cost
EOQ=2×100,000×100.005=400,000,000=20,000
How many orders per year would be placed? What would the annual ordering cost be?
b-
Number of Orders=Annual Demand
EOQ=100,000 20,000=5 orders
Ordering Cost=Number of Orders×Ordering Cost
=5×10=$50
What would the average inventory be? What would the annual holding cost be?
c-
Average Inventory=EOQ
2=20,000
2=10,000
Screws Carrying/Holding Cost=Average Inventory×Holding Cost per unit
=10,000×0.005=$50
6-22 Lila’s brother believes that she places too many orders for screws per year. He believes that an order should be placed only twice per year. If Lila follows her brother’s policy, how much more would this cost every year over the ordering policy that she developed in Problem 6-20? If only two orders were placed each year, what effect would this have on the ROP?
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