90.2K

Verified Solution

Link Copied!

QUESTION ONE It was a typical morning in Melbourne with thousands of tourists headed to the beaches to have fun and boat cruising on the peaceful ocean. About a few kilometres away lies Frankston town where the CEO of Fast electronics supply (FES) limited faced a severe problem with Fast Supply Limiteds inventory management. The CEO worked in electronic components distribution industry for more than 20 years. Six years ago, he founded the Fast Electronics Supply(FES) ltd an electronic distributor. Despite a couple of successful years, the company is now troubled with eroding profit margins. To reverse the situation, the CEO talked to a prestigious local university where he was advised that the most effective way to increase profitability is to cut inventory costs and introduce an effective purchasing process. Currently suppliers take between two and four weeks to deliver. It costs FES K20 to place an order with suppliers. The company orders a big amount of stock every time it felt it is necessary. The cost of one unity of stock is K10.When Fast Supply ltd does not have enough inventory to fill a customers order, the sales are lost and this costs the company K2 per unit. To avoid this minimum stock (buffer stock) is kept.Furthermore,reorder level is placed at 75% of the maximum stock level. This was done to try to reduce holding costs which stands at 2% of the stock value.There are 50 weeks in a year. The following information about the demand of the stock is given to you WEEK DEMAND WEEK DEMAND WEEK DEMAND WEEK DEMAND WEEK DEMAND 1 869 11 1022 21 663 31 959 41 1009 2 902 12 959 22 1146 32 703 42 852 3 1109 13 756 23 1016 33 823 43 1036 4 947 14 882 24 1166 34 862 44 736 5 968 15 829 25 829 35 966 45 942 6 917 16 726 26 723 36 1002 46 1029 7 1069 17 666 27 766 37 763 47 1039 8 1086 18 879 28 996 38 932 48 856 9 1066 19 1086 29 962 39 1052 49 979 10 929 20 992 30 1122 40 989 50 793 REQUIRED (A) Calculate the Reorder level (2 Marks) (B) Calculate the minimum Stock level (2 Marks) (C) Calculate the reorder Quantity (2 Marks) (D) Calculate total stocking costs for the current system (5 Marks) (E) Using a table,with orders of between 10 and twenty per year, Calculate the Economic Order Quantity (EOQ) and confirm your answer using a formular (10 marks) (F) Calculate total stocking costs if EOQ is used (4 Marks)

Answer & Explanation Solved by verified expert

See Answer