Managing Stock Levels

Please answer the questions below based on Figure 1: a) (i) Identify the area on the chart denoted by 'A.'

(ii) Identify the area on the chart denoted by 'B.'

(iii) Identify the line on the chart denoted by 'C."

b) Quame King Electronics Ltd purchases 8,000 transistors each year as components in minicomputers. The unit cost of each transistor is $10, and the cost of carrying one transistor in inventory for a year is $3. Ordering cost is $30 per order. Assume that Quame King Electronics Ltd operates a 200-day working year.

i) What is the optimal order quantity?

ii) What is the expected number of orders placed each year?

iii) What is the expected time between orders?

c) Kleptix demand is 10,000 transistors, and the business operates a 300-day working year. Delivery from their supplier takes 5 working days.

Calculate the reorder point for the transistors.

d) Kleptix has an annual demand rate of 1,000 transistors, but can produce at an average production rate of 2,000 transistors. Setup cost is $10, carrying cost is $1.

What is the optimal number of units to be produced each time?

e) Eric Shaw supplies and fits alarm systems to motor cars. He supplies and fits the alarms for $99. The variable costs of each alarm fitted are the cost of the alarm $45, plus other variable costs of $14. Annual fixed costs which include a leasing charge on his van, other motor expenses, insurance and administrative costs are $9,800. (i) How may alarms must be sold and fitted for Eric to break-even during the year? (ii) Eric has been considering a price reduction to generate more business. If he charges $84, how many alarms must be sold and fitted to break-even?