What is the expected length of the replenishment cycles

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Reference no: EM132289575

A plant uses 5000 units per year of a certain subassembly that is purchased from a supplier at the price of $600 per unit. The plant operates 300 days per year, and it uses a continuous review policy for the replenishment of this item, with an order size of 200 units. Furthermore, the cost of placing and delivering an order is equal to $300 and the annual holding cost for this item is computed on the basis of an interest rate of 6.0%. Answer the following questions:

a. What is the expected length of the replenishment cycles for this item? Please, state your answer in terms of working days.

b. What is the resultant annual inventory holding plus ordering cost with respect to this item?

c. What is the excess cost experienced by this policy compared to the continuous review policy that employs an optimized order size for this item?

d. What is the annual inventory holding plus ordering cost that will be experienced by the company with respect to this item, if its replenishment policy is dictated by a "power-oftwo" scheme that seeks to coordinate the replenishment cycles of this item with those of some other items carried by the company, and it has as its base period the working day?

Reference no: EM132289575

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