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43 A company produces screwdrivers and is open for 250 days. In the year of 2020,...

43

A company produces screwdrivers and is open for 250 days. In the year of 2020, annual demand is 25,000, annual holding cost (H) is $10/unit, ordering cost (S) is $75, and lead time is 3 days. Calculate reorder point and total cost for EOQ model.

300 units, $3,000

400 units, $5,477

300 units, $3,058

350 units, $6,123

300 units, $6,123
Business   Operations-Management   
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Answer #1

Option 5) 300 units, $6,123

Working note :

Annual demand = 25000 units

ordering cost = $75

holding cost = $10

EOQ =

= = 612.37 units

No. of orders = annual demand / EOQ = 25000/612.37 = 40.82 orders

Time between orders = 250/41 = 6.098 days

Lead time (given) = 3 days

Since lead time < time between orders

Therefore, Reorder point = (25000/250)*3 = 300 units [no. of working days = 250days]

Total cost of EOQ = Total ordering cost + Total holding cost

= (No. of orders * ordering cost) + (EOQ/2)*holding cost

= (40.82*$75) + (612.37/2)*$10 = $3061.5 + $3061.85 = $6123.35 or $6123

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