Cress Electronic Products manufactures components used in the automotive industry. Cress purchases parts for use in its manufacturing operation from a variety of different suppliers. One particular supplier provides a part where the assumptions of the EOQ model are realistic. The annual demand is 5000 units, the ordering cost is $80 per order, and the annual holding cost rate is 25%.
a. If the cost of the part is $20 per unit, what is the economic order quantity?
b. Assume 250 days of operation per year. If the lead time for an order is 12 days, what is the reorder point?
c. If the lead time for the part is seven weeks (35 days), what is the reorder point?
d. What is the reorder point for part (c) if the reorder point is expressed in terms of the inventory on hand rather than the inventory position?