Question No: 4 (b)

If backordering is permitted and the cost of backordering amounts to $3.5per unit, the backordering cost would be added in the ordering cost. Furthermore, it was assumed that backordering unit’s amount would be equal to 2000. Therefore, it can be evaluated that the economic order quantity would amount to 402.49 units in each order.  Furthermore, an additional backordering cost would be added to the total annual actual cost amounting to $7,000, which would inflate the actual cost to $151,214.66. Moreover, it would decrease the average number of orders made in the year.

Question No: 4 (c)

If the order quantity is maintained at 950 units per order, then it would decrease the annual holding cost per unit to $1.98 instead of $2.00. Furthermore, the average number of orders would decrease to 12.63, attributed to the increase in order quantity. Hence, the variable cost of ordering had decreased along with its annual holding cost. Therefore, it can be determined from the calculation in excel exhibit that the offer should be accepted, due to the fact that it accounts towards decreasing the total annual actual cost of the inventory procured and held.

 

Question No: 2 (c)

At the stamping machine, it can be determined that increasing the batch size at a particular step by a particular size would increase the process capacity at that step, without decreasing the current flow rate. However, if the batch size of part A decreases to 110, then it would decrease the Stamping machines capacity to 24.09 per unit instead of 25.81. Therefore, it was evaluated for the excel exhibit that as the batch size of Part A decreases, it would further decrease its capacity.

Question No: 3 (a)

The Economic ordering quantity method was used as represented by the formula Ö2(cost of ordering) (Annual demand)/Cost of holding per unit, which was implemented in the excel exhibit to reach the economic order quantity amounting to 6,324.56. Therefore, it can be determined that, Joe should order above mentioned amount, which could provide economic value to the organization.

Question No: 3 (b)

If Joe decides to order 3800 gallon each time he places an order to his suppliers, then he would ion average order around 63.16 orders. Calculated by the formula represented as annual demand/order quantity.

Question No: 3 (c)

If Joe decides to order 15000 gallon each time he ordered to avail the discount of 4% on per gallon price, then the average number of orders would amount to 16 in the year, amounting to $560 in ordering costs. Whereas, the total cost of material would amount to 276,480, after availing the discount of 4%. Hence, the total cost incurred in the year would amount to 377,840, after including the holding cost per unit.

Question No: 4 (a)

The economic ordering quantity amounts to 346.61 calculated using the formula represented as,Ö2(cost of ordering) (Annual demand)/Cost of holding per unit. Furthermore, in the excel exhibit, the total annual ordering cost amounts to $120,249.42 and the total annual holding cost amounts to $24,000. The total annual cost amounts to $144,249.42, as calculated by addition the total cost of ordering and holding.

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