Cress Electronic Products manufactures components used in the
automotive industry. Cress purchases parts for use in its
manufacturing operation from a variety of different suppliers. One
particular supplier provides a part where the assumptions of the
EOQ model are realistic. The annual demand
is 3,750 units, the ordering cost is $60 per order,
and the annual holding cost rate is 25%.
(a)
If the cost of the part is $20 per unit, what is the economic
order quantity?
(b)
Assume 250 days of operation per year. If the lead time for an
order is 12 days, what is the reorder point?
(c)
If the lead time for the part is six weeks (30 days), what is
the reorder point?
Compare this with the economic order quantity from part (a).
Explain the relative size of these two
quantities. Hint: Remember that the reorder point is
expressed in terms of inventory position.
The reorder point is ---Select--- greater
than less than the order quantity. There will
be ---Select--- no orders one order two
orders three orders outstanding when the reorder point is
reached.
(d)
What is the reorder point for part (c) if the reorder point is
expressed in terms of the inventory on hand rather than the
inventory position?