Practice exercise of inventory management about EOQ, POQ, Quantity Discount PDF

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Summary

Race One Motors is an Indonesian car manufacturer At its largest manufacturing facility,
in Jakarta, the company produces subcomponents at a rate of 300 per day, and it uses
these subcomponents at a rate of 12,500 per year (of 250 working days). Holding costs
are $2 per item per ye...

Description

Race One Motors is an Indonesian car manufacturer At its largest manufacturing facility, in Jakarta, the company produces subcomponents at a rate of 300 per day, and it uses these subcomponents at a rate of 12,500 per year (of 250 working days). Holding costs are $2 per item per year, and ordering costs are $30 per order. (a) What is the economic production quantity? (b) How many production runs per year will be made? (c) What will be the maximum inventory level? (d) What percentage of time will the facility be producing components? (e) What is the annual cost of ordering and holding inventory?

SOLUTION

D = 12,500/year, so

d = (12,500/250) = 50/day, p = 300/day, S = $30/order, H = $2/unit/year 2 DS =  H 1 – pd   

2 × 12,500 × 30 = 671 2 1 – 50   300 

(a) 

Q=

(b) 

Number of production runs ( N ) =

(c) 

 d 50   Maximum inventory level  Q 1   = 671 1   p  300  

D 12,500 = = 18.63 671 Q

1  = 671 1   = 559 6 

(d)  Days of demand satisfied by each production run



250 = 13.42 days 18.63

Days in production for each order =

Q 671 p = 300 = 2.24

Total time = 13.42 days per cycle. Thus, percent of time in production =

(e) 

Cost of inventory, excluding goods  559  (18.63 30)    2

 2  $1,117.90 

2.24 = 16.7% 13.42...