v

Question 3 Pegasus Engineering Plc uses circuit boards in its electronic hand tools that it manufactures, and this usage is relatively constant throughout the year. The firm demand for the component is 5 000 unit per year. These circuit boards are purchased from a supplier for $30 each, and the lead time is two (2) days. The holding cost per unit per year is 5% of the unit cost and the ordering cost per order is $30. There are 250 working days per year. Required: A. B. i. Calculate the economic order quantity (EOQ) ii. Given the EOQ, determine the total annual inventory cost. iii. Outline three assumptions of the EOQ Model The Firm wants to reconsider the decision of buying the circuit boards and is considering making the circuit boards in-house. Management has determined that setup costs would be $50 and 50 circuit boards could be produced in a day, once the machine has been set up. Management estimates that the cost (including labour time and materials) of producing one unit would be $28. The holding cost would be 10% of this cost. Required: i. What is the daily demand rate? ii. What is the optimal production quantity? iii.) Given the optimal production run size, what is the total annual inventory cost? vi.) Given that the lead time is two days, what is the re-order point(ROP)?