Reliant Auto estimates the annual demand for its newest model is 60,000 units, t
ID: 367421 • Letter: R
Question
Reliant Auto estimates the annual demand for its newest model is 60,000 units, the cost of order preparations is $55,000, the inventory carrying cost per car per year is $5,000 and the order lead-time is 1 month. Reliant keeps 500 units of safety stock.
-What is the Economic Order Quantity?
-Approximately what is the order frequency?
-What is the demand during lead-time?
-What is the Maximum Inventory Level Reliant should have, assuming orders arrive on time and inventory is depleted as predicted?
-What is the Minimum Inventory Level should have, assuming orders arrive on time and inventory is depleted as predicted?
Show all work.
Explanation / Answer
Continuous Model or Fixed order quantity Annual Demand D = 60,000 Monthly Demand µ = D/12 5000 Lead Time (Months) L = 1 Annual Holding Cost per Unit H = $5,000 Ordering Cost per Order S = $55,000 1) Economic Order Quantity Q = (2SD/H) 1149 2) Order frequency (orders per year) = D/Q 52 3) Demand during lead time R = µ*L 5,000 4) Maximum Inventory level = Q 1,149 5) Minimum Inventory level = 0