Computing total cost at economic order quantity

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Reference no: EM1310779

Q1) Tech Products purchases 200,000 motors per year from supplier that can fulfil orders within 2 days of receiving them. Tech transmits its orders to this supplier electronically so lead time to get orders is 2 days. Tech Products’ order cost is about= $295 per order and its carrying cost is about $37 per motor per year. Firm maintains a safety stock of motors equal to 6 days usage. Suppose a 365-day year.

a) Determine Tech Products’ economic order quantity (EOQ) for motors?

b) Compute its total cost at the EOQ?

c) How large a safety stock (in units) of motors must Tech Products maintain?

d) Write down Tech Products’ reorder point for motors?

e) If Tech Products has the opportunity to decrease by 10% either its order cost or its carrying cost, which would result in the lowest total cost at associated new EOQ?

f) Determine the total cost savings will result from the lowest-cost strategy found in part (e) relative to the total cost found in part (b)?

Reference no: EM1310779

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