Rally Communications Company manufactures glass fibres used in the communications industry. The company's materials and parts...

 

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Rally Communications Company manufactures glass fibres used in the communications industry. The company's materials and parts manager is currently revising the inventory ordering policy for XL-20, one of the chemicals used in the production process. The chemical is purchased in 10-kilogram canisters for $95 each. The firm uses 4 800 canisters per year. The accountant estimates that the incremental costs of ordering and receiving XL-20 are $150 per order. The annual cost of storing XL-20 is $4 per canister. Required: 1. Use the EOQ formula to determine the optimal order quantity for XL-20. 2. What is the total annual cost of ordering and storing XL-2O at the economic order quantity? 3. How many orders will be placed per year? 4. Rally's accountant, Frank Mallard, recently attended a seminar on JIT purchasing. Afterwards, he analysed the cost of storing XL- 20, including the cost of wasted space and inefficiency. He was shocked to find that the real annual carrying cost was $20 per canister. Mallard then met with Doug Kaplan, Rally's purchasing manager. Together they contacted Chemical Industries, the supplier of XL-20, about a JIT purchasing arrangement. After some discussion and negotiation, Kaplan concluded that the cost of placing an order for XL-20 could be reduced to just $30. (a) Calculate the new EOQ for XL-20. (b) How many orders will be placed per year? Rally Communications Company manufactures glass fibres used in the communications industry. The company's materials and parts manager is currently revising the inventory ordering policy for XL-20, one of the chemicals used in the production process. The chemical is purchased in 10-kilogram canisters for $95 each. The firm uses 4 800 canisters per year. The accountant estimates that the incremental costs of ordering and receiving XL-20 are $150 per order. The annual cost of storing XL-20 is $4 per canister. Required: 1. Use the EOQ formula to determine the optimal order quantity for XL-20. 2. What is the total annual cost of ordering and storing XL-2O at the economic order quantity? 3. How many orders will be placed per year? 4. Rally's accountant, Frank Mallard, recently attended a seminar on JIT purchasing. Afterwards, he analysed the cost of storing XL- 20, including the cost of wasted space and inefficiency. He was shocked to find that the real annual carrying cost was $20 per canister. Mallard then met with Doug Kaplan, Rally's purchasing manager. Together they contacted Chemical Industries, the supplier of XL-20, about a JIT purchasing arrangement. After some discussion and negotiation, Kaplan concluded that the cost of placing an order for XL-20 could be reduced to just $30. (a) Calculate the new EOQ for XL-20. (b) How many orders will be placed per year?

Answer rating: 100% (QA)

1 Economic Order Quantity Suquare root of 2DSH D Demand in Units 4800 Canister per ... View the full answer