EOQ, uncertainty, safety stock, reorder point. Phillips Corporation is a major manufacturer of food processors. It purchases motors from Viking Corporation. Annual demand is 52,000 motors per year or 1,000 motors per week. The ordering cost is $360 per order. The annual carrying cost is $6.50 per motor. It currently takes 2 weeks to supply an order to the assemblyplant. 1. What is the optimal number of motors that Phillips's managers should order according to the E0Q model?2. At what point should managers reorder the motors, assuming that both demand and purchase-orderlead time are known with certainty?3. Now assume that demand can vary during the 2-week purchase-order lead time. The following tableshows the probability distribution of various demand levels:RequiredTotal Demand for Motors for 2 Weeks Probability of Demand (sums to 1)1,6000.051,8002,0002,2000.200.500.200.052,400If Phillips runs out of stock, it would have to rush order the motors at an additional cost of $5 per mo-tor. How much safety stock should the assembly plant hold? How will this affect the reorder point andreorder quantity?

Answered: Image /qna-images/answer/5d9ff22d-79fc-4301-b0a7-338264a7ca93.jpg

Answered: 1. What is the optimal number of motors…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

EOQ, uncertainty, safety stock, reorder point. Phillips Corporation is a major manufacturer of food processors. It purchases motors from Viking Corporation. Annual demand is 52,000 motors per year or 1,000 motors per week. The ordering cost is $360 per order. The annual carrying cost is $6.50 per motor. It currently takes 2 weeks to supply an order to the assembly
plant.

1. What is the optimal number of motors that Phillips's managers should order according to the E0Q model?
2. At what point should managers reorder the motors, assuming that both demand and purchase-order
lead time are known with certainty?
3. Now assume that demand can vary during the 2-week purchase-order lead time. The following table
shows the probability distribution of various demand levels:
Required
Total Demand for Motors for 2 Weeks Probability of Demand (sums to 1)
1,600
0.05
1,800
2,000
2,200
0.20
0.50
0.20
0.05
2,400
If Phillips runs out of stock, it would have to rush order the motors at an additional cost of $5 per mo-
tor. How much safety stock should the assembly plant hold? How will this affect the reorder point and
reorder quantity?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 7 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions