The company distributes a wide variety of bicycles. The most popular model, and
ID: 3252306 • Letter: T
Question
The company distributes a wide variety of bicycles. The most popular model, and the major source of revenue to the company, is the AirWing. MPBC receives all the models from a single manufacturer overseas, and shipment takes as long as four weeks from the time an order is placed. With the cost of communication, paperwork, and customs clearance included, MPBC estimates that each time an order is placed, it incurs a cost of $65. The purchase price paid by MPBC, per bicycle, is roughly 60% of the suggested retail price for all the styles available, and the inventory carrying cost is 1% per month (12% per year) of the purchase price paid by MPBC The retail price (paid by the customers) for the AirWing is $170 per bicycle. MPBC is interested in making an inventory plan for 2011. The firm wants to maintain a 95% service level with its customers to minimize the losses on the lost orders. The data collected for the past two years are summarized in the following table. A forecast for AirWing model sales in the upcoming year 2011 has been developed and will be used to make an inventory plan for MPBC. Discuss ROPs and total costs.Explanation / Answer
Demand rate, D = 439
Ordering/Setup cost, S = 65
Unit Price, P =102
Holding cost, H = 102 X 12/100 = 12.24 (fxed amount)
Daily demand rate, d = 439/12 = 37
Lead Tme in days, L =28
Optmal Order Quantity, Q* = 68.283
Maximum Inventory = 68.283
Average Inventory = 34.14
Number of Orders = 439 / 68.283 = 6.429
Holding cost = 34.14 * 12.24 = $417.87
Order cost = =6.429 * 65 = $417.89
UniT costs = 439 X $102 = $44,778.00
Total cost = $45,613.79
Reorder Point = 1036