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Calculate the total annual inventory cost of component z

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Reference no: EM132963011

One of the plants owned by Jaguh Sdn. Bhd. experiences a daily demand of 100 units of component Z that is purchased from a supplier at RM25 per unit. The plant operates 360 days per year. The plant has been using continues review policy for replenishment of the component, with an order size of 400 units. In order to minimize total annual inventory cost, the company is now considering to use the economic order quantity (EOQ) model. The company has determined that the cost of placing an order including delivery is RM20 and the annual holding cost per unit is RM4.

Required:

Problem a. Calculate the total annual inventory cost of component Z by using the current order size of 400 units.

Problem b. Apply the EOQ model to determine the optimal order size of the component.

Problem c. Based on your answer in (b) above, calculate the total annual inventory cost of component Z and evaluate how much the company would save the cost if using the EOQ model.

Reference no: EM132963011

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