Chapter 4.5, Problem 12P

A

Summary Introduction

To calculate: The most ideal amount of imported car mufflers that should be ordered per order and the time gap between each order.

Introduction:In determining the optimal order quantity also known as the economic order quantity, a manufacturing company is able tomaximize its cost efficiency in terms of ordering cost & holding costs. It also helps in effective inventory management to minimize wastage.

b

Summary Introduction

To calculate:The re-order point based on the level of on-hand inventory

Introduction:The re-order point is the threshold of stock you identify to make the next order. In light of the same, the re-order point makes sure you have adequate time to restock before it reaches zero. This will make sure of the smooth flow of a company’s production cycle.

c

Summary Introduction

To calculate:The additional holding and set-up costs involved if the company is to buy imported car mufflers only once a year.

Introduction:The advantage of placing an order once a year will depend on the many costs relate to the stock ordered. In the said example, the two costs related the order are holding cost and the set up cost, hence the answer is given based on those two cost factors.