Reference no: EM132394723

A company stocks a component that costs $35 per unit. Annual usage of this item is expected to be at 1560 units. The firm is open for business 52 weeks per year, so weekly demand is 40 units per week, with a standard deviation of 10 units. The firms cost accountants have estimated that it costs $60 every time an order is placed for more components, and carrying the item in inventory costs about $ 5 per unit per year. Past experience with their supplier indicates that the time from ordering more items to receipt of shipment of those items is 21 days (assume that they are open 7 days a week).

A. What quantity should be ordered each time? (Assume that EOQ assumptions apply).

B. What is the minimum total annual cost (ordering + holding + purchase) for managing this inventory item?

c. If the company decided their JIT program requires frequent small orders and deliveries (assume that this would mean ordering a quantity of 30 units every week, instead of the EOQ quantity on a less frequent basis), and the costs remain the same as described above, how much higher would the total cost be for this item?

d. If a 95% service level is required, what reorder point should be used?