Asked by Stefan Ender on Jun 25, 2024
Verified
Huckaby Motor Services, Inc. rebuilds small electrical items such as motors, alternators, and transformers, all using a certain type of copper wire. The firm's demand for this wire is approximately normal, averaging 20 spools per week, with a standard deviation of 6 spools per week. Cost per spool is $24; ordering costs are $25 per order; inventory handling cost is $4.00 per spool per year. Acquisition lead time is four weeks. The company works 50, 5-day weeks per year.
a. What is the optimal size of an order, if minimization of inventory system cost is the objective?
b. What are the safety stock and reorder point if the desired service level is 90%?
Standard Deviation
An index indicating the degree of spread or diversity among values in a dataset.
Acquisition Lead Time
The total time taken from recognising a need for a product or service to when it is fully operational or delivered.
Inventory Handling Cost
The expenses associated with managing and maintaining inventory, including storage, labor, material handling, and related overhead.
- Encompass knowledge concerning the Economic Order Quantity (EOQ) and its effects on the financial aspects of inventory.
- Ascertain the most economical ordering volumes to reduce the full spectrum of inventory-related costs, including the costs for ordering and storage.
- Identify the essential reorder points along with safety stock levels to manage inventory shortfall risks and maintain specified service standards.
Verified Answer
FA
Fakhrul AimanJun 29, 2024
Final Answer :
Demand is 20 × 50 = 1000 spools per year
a. Q∗ = 2⋅20⋅50⋅254\sqrt { \frac { 2 \cdot 20 \cdot 50 \cdot 25 } { 4 } }42⋅20⋅50⋅25 = 111.8 . Huckaby should order 112 spools at one time.
b. SS = 1.29 ∙ 6 ∙ 4\sqrt { 4 }4 = 15.48 or about 16 spools. The ROP is thus 20 ∙ 4 + 16 = 96 spools.
a. Q∗ = 2⋅20⋅50⋅254\sqrt { \frac { 2 \cdot 20 \cdot 50 \cdot 25 } { 4 } }42⋅20⋅50⋅25 = 111.8 . Huckaby should order 112 spools at one time.
b. SS = 1.29 ∙ 6 ∙ 4\sqrt { 4 }4 = 15.48 or about 16 spools. The ROP is thus 20 ∙ 4 + 16 = 96 spools.
Learning Objectives
- Encompass knowledge concerning the Economic Order Quantity (EOQ) and its effects on the financial aspects of inventory.
- Ascertain the most economical ordering volumes to reduce the full spectrum of inventory-related costs, including the costs for ordering and storage.
- Identify the essential reorder points along with safety stock levels to manage inventory shortfall risks and maintain specified service standards.