Pioneer Aviation uses specialty gaskets in the production of a small aeroplane, X.224. During a year, Pioneer uses 15,625 gaskets with an average usage of 50 gaskets per day of production. The gaskets cost $45 each. Because the gaskets require some special handling, the carrying costs are $5 per gasket. The ordering costs are $10 per order. Currently, Pioneer Aviation is placing orders for 1,000 gaskets. However, some of these gaskets are being damaged due to limited availability of the needed special storage. Elastomers, Inc. is the supplier of the specialty gaskets and can usually fill an order in 2 days. Occasionally, Elastomers is backlogged, but they never take more than 3 days to fill an order. If Pioneer runs out of gaskets, production will stop.

Required:

A. Calculate the total ordering cost and carrying cost for the current order size.

B. Calculate the economic order quantity. Comment on whether this order quantity will help alleviate Pioneer Aviation’s inventory storage concerns.

C. Calculate the appropriate re-order point. Discuss any potential problems with the timing of this re-order point.