Question 1 ABC company faces a monthly demand of 800 for a certain type of product. Currently they are ordering the product from an offshore supplier in China. Due to production and shipping restrictions the company places an order from this supplier every month. (i.e. the time between two orders is one months.) Every time they place an order, they need to pay a fixed shipping cost of $120 to the supplier. Each product costs $50 to purchase from this supplier. The holding cost is based on 20% annual interest rate. It takes 0.5 months for the supplier to process the order and the order arrive to the company. a) ' What is the average inventory level? b), Vhat is the reorder point? c / Calculate the annual inventory holding cost ABC company is currently incurring. d) , Calculate the annual ordering cost ABC company is currently incurring. e) Calculate the economic order quantity for the given problem. f) company was using the economic order quantity you found in part (e) Calculate the optimal annual inventory holding cost that would have been incurred if the g) was using the economic order quantity you found in part (e) Calculate the optimal annual ordering cost that would have been incurred if the company h) Calculate how much the company is losing because they cannot use the economic order quantity?
Question 1 ABC company faces a monthly demand of 800 for a certain type of product. Currently they are ordering the product from an offshore supplier in China. Due to production and shipping restrictions the company places an order from this supplier every month. (i.e. the time between two orders is one months.) Every time they place an order, they need to pay a fixed shipping cost of $120 to the supplier. Each product costs $50 to purchase from this supplier. The holding cost is based on 20% annual interest rate. It takes 0.5 months for the supplier to process the order and the order arrive to the company. a) ' What is the average inventory level? b), Vhat is the reorder point? c / Calculate the annual inventory holding cost ABC company is currently incurring. d) , Calculate the annual ordering cost ABC company is currently incurring. e) Calculate the economic order quantity for the given problem. f) company was using the economic order quantity you found in part (e) Calculate the optimal annual inventory holding cost that would have been incurred if the g) was using the economic order quantity you found in part (e) Calculate the optimal annual ordering cost that would have been incurred if the company h) Calculate how much the company is losing because they cannot use the economic order quantity?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 1
ABC company faces a monthly demand of 800 for a certain type of product. Currently they are ordering
the product from an offshore supplier in China. Due to production and shipping restrictions the company
places an order from this supplier every month. (i.e. the time between two orders is one months.) Every
time they place an order, they need to pay a fixed shipping cost of $120 to the supplier. Each product costs
$50 to purchase from this supplier. The holding cost is based on 20% annual interest rate. It takes 0.5
months for the supplier to process the order and the order arrive to the company.
a)
What is the average inventory level?
b),
Vhat is the reorder point?
c)
Calculate the annual inventory holding cost ABC company is currently incurring.
d)
Calculate the annual ordering cost ABC company is currently incurring.
e)
Calculate the economic order quantity for the given problem.
f)
company was using the economic order quantity you found in part (e)
Calculate the optimal annual inventory holding cost that would have been incurred if the
g)
was using the economic order quantity you found in part (e)
Calculate the optimal annual ordering cost that would have been incurred if the company
h}
quantity?
Calculate how much the company is losing because they cannot use the economic order
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