Calculate the total annual inventory control cost of the eoq

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Reference no: EM13841859

Sterling Pulp Chemicals (ERCO) in Saskatoon produces chemicals for processing pulp, such as caustic soda. In its maintenance warehouse, it keeps all the spare parts for its equipment as well as supplies such as light bulbs. For inventory control, it uses the Min/Max model which is basically the EOQ/ROP model. Every day, the computer system identifies those stocks that have reached their minimum (ROP) level, and the inventory staffs orders those items. For illustration, consider the usage of item #14-46-506: four-foot supersaver flourescent light bulbs in the first 10 months of 2008: 10, 10, 66, 32, 34, 18, 24, 9, 14 and 48. The forecast for November using Exponential Smoothing with α = 0.3 is 27.48 units, and the standard deviation of monthly demand for these bulbs is 18.84 units. The lead time from that supplier, EECOL Electric, is 14 days, and the unit cost is $1.40. Holding cost rate for Sterling is estimated to be 20 percent of unit cost per year and ordering cost is $1 per order. Assume 30 days in a month.

a. Calculate the EOQ for this item. (Hint: D = forecast for November x 12)

b. For how many months is the EOQ enough (i.e., its time supply)?

c. Calculate the total annual inventory control cost of the EOQ.

d. Suppose now this part is ordered 55 units at a time. How much more costly is this?

e. Calculate the reorder points for these bulbs. Use a 95 percent lead time service level.

f. Suppose that the fixed order interval model is used to order these bulbs. Given an order interval of two months, calculate the order up to level (I max) for these bulbs. Use a 95 percent service level.

Reference no: EM13841859

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