Reference no: EM132698751
The data is D = 50,000/year, S= $500 per order, H = $0.25 per unit per year. Assume a lead time of 3 days.
Answer the following. Write out the formulas you are using.
Annual Demand?
Holding cost (units per year) ?
Ordering Cost?
Ordering Quantity (EOQ)?
Number of orders per year ?
average inventory ?
maximum inventory ?
reorder level ?
length of order cycle?
annual holding cost ?
annual ordering cost ?
annual affected inventory cost?
lead time ?
(b) Suppose a mistake was made in the data and the correct data is D = 60,000 per year, S = $400 per order, H = $0.20 per unit per year. Calculate the correct EOQ and affected inventory cost.
(c) Now suppose we used the incorrect EOQ (based on the first set of data) instead of the correct EOQ. Calculate the affected inventory cost.
(d) Compute the percentage error in the EOQ and in the inventory cost.
(e) Moral of the story is that incorrect estimation of costs or demand (does or does not) result in substantial deviation from the optimal cost (circle the right answer).
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