60.1K

Verified Solution

Link Copied!

Lownie Limited uses $7,200$ units of material T$-95$ each year. The material is used evenly throughout the year in the company$$s production process. A recent cost study indicates that it costs $$3\mathrm{.}20$ to carry one unit in inventory for a year. The company estimates that the cost of placing an order for material T$-95$ is $$45.$

On average, it takes $7$ days to receive an order from the supplier. Sometimes orders do not arrive for $10$ days, and at rare intervals $($about $2\%$ of the time$)$ they do not arrive for $12$ days. Each unit of material T$-95$ costs the company $$15.$ Lownie Limited works an average of $360$ days per year.

Required:

$1.$ Compute the EOQ.

$2-$a$.$ What size safety stock would you recommend for material T$-95?($Round your answer to $2$ decimal places.$)$

$3.$ What is the reorder point for material T$-95$ in units assuming $($a$)3-$day safety stock, and $($b$)5-$day safety stock?

$4.$ Compute the total cost associated with ordering and carrying material T$-95$ in inventory for a year assuming $($a$)3-$day safety stock, and $($b$)5-$day safety stock. $($Do

not include the $$30$ purchase cost in this computation.$)$

$3$day safety stock $5$day stock

Total Annual Cost

Carruomg cost of inventory

$5.$ Refer to the original data. Assume that as a result of adopting JIT purchasing policies, the company is able to reduce the cost of placing a purchase order to only $$20.$ Also assume that after considering the waste and inefficiency caused by inventories, the actual cost of carrying one unit of material T$-95$ in inventory for a year is $$6.$

a$.$ Compute the new EOQ. $($Round your final answer to the nearest whole number.$)$

b$.$ How frequently would the company place a purchase order, as compared to the old purchasing policy? $($Round your answers to $1$ decimal place.$)$

Old Policy $($days$)$ New Policy $($days$)$

Answer & Explanation Solved by verified expert

See Answer