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Order and Reorder Quality

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A company reserves a safety stock of 200 units of a certain item in its inventory. The annual demand for the item is 5000 units. Calculate: (show all work)

1. The re-order point if the lead time is 5 working days and the company operates for 250 working days in the year.

2. The economic order quantity if the:
COST PRICE PER ITEM = R68
ORDERING COST = R25 PER ORDER
RATE OF RETURN ON CAPITAL = 12%
ANNUAL STORAGE RENTAL = R10 PER UNIT
ANNUAL INSURANCE = 10% OF UNIT COST

3. The number of orders placed annually,

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Solution Summary

This solution contains step-by-step calculations to determine the reorder point, economic order quantity and the number of orders placed annually.

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A COMPANY RESERVES A SAFETY STOCK OF 200 UNITS OF A CERTAIN ITEM IN ITS INVENTORY. THE ANNUAL DEMAND FOR THE ITEM IS 5000 UNITS. CALCULATE:
(SHOW ALL WORKINGS)

1.THE RE-ORDER POINT IF THE LEAD TIME IS 5 WORKING DAYS AND THE ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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