A car assembly plant on each working day produces 500 cars each requiring 4 brake assembly kits. The plant works 250 days per year. Workers in the raw materials store are paid a gross weekly wage of $800 and labor overheads for holidays, payroll tax, superannuation, etc. amount to 25% of gross wages. It is estimated that handling and supervision of brake kits in the store account for 20% of the time of l storeman. Four hundred square meters of floor area have been set aside in the store for storage of these kits, and occupancy costs have been estimated for the store at $54.00 per square meter per annum. The fire insurance premium rate for contents of the store is $1.00 per $100 value. The company needs to make a return of 15% before tax on all funds employed, and each brake kit has an into-store cost of $40. The brake kits are made in a components plant owned by the company and the estimated cost to the assembly plant of placing and processing 1 order on the components plant is $40. It is also estimated that it costs $60 for the components plant to process the paperwork associated with an order and $3100 in set-up costs to prepare for a production run of brake kits. 

Required: 

(a) Assuming that the average number of brake kits on hand throughout the year is 20 000 and that the storage space and storeman's time could be otherwise utilized, calculate the annual cost of carrying l kit in stock for l year. 

(b) Using your answer from (a) calculate the economic order quantity. 

(c) Due to scheduling difficulties in the components plant there is some uncertainty about order lead time for the kits. The following probability estimates have been made concerning order lead times: Lead time in days Probability 3 0.30 4 0.15 5 0.15 6 0.15 7 0.15 8 0.10 Using the expected value concept calculate the re-order point in units for brake kits.

Answer rating: 100% (QA)

a The annual cost of carrying 1 kit in stock for 1 year would be 80... View the full answer