The demand rate of item MM1 in Company XYZ is 3,000 units per month. The cost...

 

Transcribed Image Text:

The demand rate of item MM1 in Company XYZ is 3,000 units per month. The cost of placing an order for item MM1 is $400 per batch. The cost of holding the item in inventory is estimated to be $1.0 per unit per month. The order will be delivered in 1 day after the order is placed. To ensure a very low chance of stock out, the management of the company has a policy of keeping 500 units of safety stock for all items. The Production Manager of the company wants to manage the inventory very closely and minimize its costs. Therefore, he chooses to use the Economic Order Quantity (EOQ) method to derive an optimal solution. ê Using the above information, apply the EOQ inventory model with no shortage policy. In so doing, calculate the following: (i) Calculate the EOQ (3 marks) (ii) What is the Minimum Total Inventory Cost of the item per year if reorder point is 500 (4 marks) units, assuming there are 30 days in a month? (iii) What is the Reorder Point, if a safety stock of 500 units is strictly enforced, again assuming there are 30 days in a month? (4 marks) (iv) Suggest THREE conditions where the above EOQ is not applicable. (6 marks) If a supplier offers a quantity discount to the company when the purchased quantities exceeds 1600 units, the price per unit will be 10% less from its origin price of $8 per unit. Reorder point is 500 units. (i) What is the Total Inventory Cost per year at THE discount quantity? What quantity should be bought? (4 marks) (4 marks) The demand rate of item MM1 in Company XYZ is 3,000 units per month. The cost of placing an order for item MM1 is $400 per batch. The cost of holding the item in inventory is estimated to be $1.0 per unit per month. The order will be delivered in 1 day after the order is placed. To ensure a very low chance of stock out, the management of the company has a policy of keeping 500 units of safety stock for all items. The Production Manager of the company wants to manage the inventory very closely and minimize its costs. Therefore, he chooses to use the Economic Order Quantity (EOQ) method to derive an optimal solution. ê Using the above information, apply the EOQ inventory model with no shortage policy. In so doing, calculate the following: (i) Calculate the EOQ (3 marks) (ii) What is the Minimum Total Inventory Cost of the item per year if reorder point is 500 (4 marks) units, assuming there are 30 days in a month? (iii) What is the Reorder Point, if a safety stock of 500 units is strictly enforced, again assuming there are 30 days in a month? (4 marks) (iv) Suggest THREE conditions where the above EOQ is not applicable. (6 marks) If a supplier offers a quantity discount to the company when the purchased quantities exceeds 1600 units, the price per unit will be 10% less from its origin price of $8 per unit. Reorder point is 500 units. (i) What is the Total Inventory Cost per year at THE discount quantity? What quantity should be bought? (4 marks) (4 marks)

Answer rating: 100% (QA)

a i EOQ sqrt2DSH sqrt230004001 49029 units ii Total inventory cost p... View the full answer