Question

The Warren W. Fisher Computer Corporation purchases 8,000 transistors each year as components in minicomputers. The unit cost of each transistor is $10, and the cost of carrying one transistor in inventory for a year is $3. Ordering cost is $30 per order. Assume that Fisher operates on a 200-day working year.
(a) What is the optimal order quantity
(b) The expected number of orders placed each year
(c) The expected time between orders?

Answer 1

Given values:

Annual demand (D) = 8,000 transistors

Unit cost of each transistor = $10

Cost of carrying (Cc) = $3

Ordering cost (Co) = $30 per order

Number of working days = 200 days

(a) Optimal Order Quantity (Q):

Q = SQRT [(2 x D x Co) / Cc]

Q = SQRT [(2 x 8,000 x $30) / $3]

Q = 400

Optimal Order Quantity = 400 transistors

(b) Number of Orders:

Number of orders = Annual demand / Optimal order quantity

Number of orders = 8,000 / 400

Number of orders = 20

(c) Expected time between orders:

Expected time between orders = Number of working days / Number of orders

Expected time between orders = 200 / 20

Expected time between orders = 10 days