Particular part to supply production process

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1. Consider a manufacturer who orders a particular part to supply a production process. Assume that the cost and demand characteristics for the ordered part satisfy the assumptions of the EOQ. Specifically, suppose that demand occurs at a constant rate of 45 units per day during the 365 days in which the manufacturing plant operates annually. The unit cost of purchased parts is $25/unit, and the annual holding cost is estimated to be 28% of the unit cost. Assuming that it costs $42 to place an order, determine: a. EOQ for the part b. Annual holding cost, annual order cost and total relevant costs associated with this order quantity.

2. Consider the same situation as described in question 1 with the exception that the supplier of the ordered part uses a standard sized pallet for shipment. Specifically, assume that the supplier ships parts in pallets of 64 units. Moreover, suppose that the supplier requires a 25-day period to deliver an order. In this case: a. What would be the optimal order quantity? b. What are the total relevant costs associated with the optimal order quantity? c. Does the modified order quantity result in higher ordering costs, higher holding costs, or both and why? d. What would be the inventory level at which new orders should be placed (ROL)? e. What would be the optimal time between consecutive orders?

Reference no: EM132284927

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