Answer the following Essay Type Questions. (Total mark=18) 1. The West Valve sel
ID: 3312736 • Letter: A
Question
Answer the following Essay Type Questions. (Total mark=18)
1. The West Valve sells industrial valves and fluid control devices. One of the most popular valves is the Western, which has an annual demand of 4,000 units. The cost of each valve is $90, and the inventory carrying cost is 10% of the cost of each valve. The average ordering cost is $25 per order. Furthermore, it takes about two weeks for an order to arrive and during this time, the demand per week is approximately 80. (6 marks)
a) What is the EOQ?
b) What is the ROP?
c) What is the average inventory?
d) What is the annual holding cost?
Explanation / Answer
(a) EOQ=(2•4'000•25/(0.1•90))149.07
(b)ROP80•2160
(c)AI=EOQ/2149.07/274.54
AHC=C•h•EOQ/290•0.1•149.07/2670.82
(d)N=D/EOQ4'000/149.0726.83
AOC=N•O26.83•25670.82
AHC=AOC670.82=670.822.