Advance Auto’s generator production operation, which is operated at a constant rate will require 1000 components per month throughout the year (12,000 units annually). Assume the ordering costs are $25 per order, the unit cost is $2.50 per component, and annual holding costs are 20% of the value of the inventory. Advance Auto has 250 working days per year and a lead time of 5 days. Answer the following inventory policy questions: What is the EOQ for this component? What is the reorder point? What is the cycle time? What are the total annual holding and ordering costs associated with your recommended EOQ?
Advance Auto’s generator production operation, which is operated at a constant rate will require 1000 components per month throughout the year (12,000 units annually). Assume the ordering costs are $25 per order, the unit cost is $2.50 per component, and annual holding costs are 20% of the value of the inventory. Advance Auto has 250 working days per year and a lead time of 5 days. Answer the following inventory policy questions: What is the EOQ for this component? What is the reorder point? What is the cycle time? What are the total annual holding and ordering costs associated with your recommended EOQ?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Advance Auto purchases a component used in the manufacture of automobile generators directly from the supplier. Advance Auto’s generator production operation, which is operated at a constant rate will require 1000 components per month throughout the year (12,000 units annually). Assume the ordering costs are $25 per order, the unit cost is $2.50 per component, and annual holding costs are 20% of the value of the inventory. Advance Auto has 250 working days per year and a lead time of 5 days. Answer the following inventory policy questions:
- What is the EOQ for this component?
- What is the reorder point?
- What is the cycle time?
- What are the total annual holding and ordering costs associated with your recommended EOQ?
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