15 pts (3 pts for each answer 1 through 5)
Nissan Motors has been producing a particular ignition box forits car engines. The Fabrication Department of the company has amonthly demand of 500 ignition boxes (Part #37822) with a weeklystandard deviation of 80. The leadtime for this part is two weeks.For the purposes of this problem, you may assume that each month isexactly 4 weeks long. Nissan requires a 97% service level for thisitem.
In the Fabrication Department, 20 hours (with labor costs of $30per hour) is allowed for each setup of Part #37822. The Accountingdepartment has determined the variable cost per box of Part #37822is $100, while the Finance Department requires a carrying cost of25% per year of the value of any item in inventory. Order cost is$125/order.
The Fabrication Department is using a Fixed Quantity/VariableInterval inventory management system.
3 pts 1) Determine how much they should order each time an order isplaced.
4 pts 2) Assume Nissan wanted a 99.9% service level for this item.Based on this managerial decision, what should the reorder pointbe? What does this information tell you?
4 pts 3) What happens to the order quantity when the setup cost isreduced to 15 hours? What is the new EOQ? What can you determineabout the relationship between EOQ and item cost?
4 pts 4) Using original parameters, what happens to the orderquantity when the order cost increases to $150/order? What is thenew EOQ? What is the relationship between order costs and EOQ?
