Question

Electronic computer services use paper at the rate of 1500 boxes per month. It cost $75...

Electronic computer services use paper at the rate of 1500 boxes per month. It cost $75 to place an order and holding cost for paper is 3.75 per Box per year, Lead time 7 days. The company operates 300 days per year.
a) computer the optimal order quantity for Electronic computer services.
b) how many orders will electronic place per year with this order quantity.
c) find out the reorder point.
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Homework Answers

Answer #1

Given are following details :

Annual demand = D = 1500 / month x 12 months = 18000

Ordering cost = Co = $75

Annual unit holding cost = Ch = $3.75 per box

Optimal order quantity

= Square root ( 2 x Co x D / Ch )

= Square root ( 2 x 75 x 1500 / 3.75 )

= 244.94 ( 245 rounded to nearest whole number )

OPTIMAL ORDER QUANTITY = 245

Number of orders per year

= Annual demand / Optimal order quantity

= 18000/ 245

= 73.47

NUMBER OF ORDERS PER YEAR = 73.47

Reorder point

= Average daily demand x Lead time

= annual demand / Number of days in a year   x Lead time ( days )

= 18000 / 300    x 7

= 60 x 7

= 420 units

REORDER PIINT = 420 UNITS
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