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GIVEN:
D = 750 pots/mo. x 12 mo./yr. = 9,000 pots/yr.
Price = $2/pot S = $20 P = $50
H = ($2)(.30) = $.60/unit/year
a. What is the annual total cost incurred by the shop due to current ordering
policy?
1,500 9,000
= (. 6) + (20)
2 1,500
= 450 + 120 = $
= 2
= 2(9,000)20
.60
= 774.60
774.6 9,000
= (. 6) + (20)
2 774.6
= 232.35 + 232.36 = 464.71/
f. Assume the lead time is two weeks and the shop works 4 weeks per month. If
the company wishes to carry no safety stock what is the reorder point?
d=750/4=187.5/week
LT=2weeks
ROP=187.5*2=375
H = 0.4*2=0.8671
2
=
2(9,000)20
= = 671
. 80
h. Suppose the store uses the wrong order quantity calculated in part f).
However, the actual carrying cost is 30 percent of cost of a pot. What total
annual cost does the store incur when using the wrong order quantity? (Round
your answer to the nearest integer.)
671 9,000
= (. 60) + (20) = 470/
2 671