Litespeed Products buys 200,000 motors per year from a supplier that can fulfill orders within two days
Question:
Litespeed Products buys 200,000 motors per year from a supplier that can fulfill orders within two days of receiving them. Litespeed transmits its orders to this supplier electronically so the lead time to receive orders is two days. Litespeed’s order cost is about $295 per order and its carrying cost is about $37 per motor per year. The firm maintains a safety stock of motors equal to six days usage. Assume a 365-day year.
a. What is Litespeed’s economic order quantity (EOQ) for the motors?
b. How large a safety stock (in units) of motors should Litespeed maintain?
c. What is Litespeed’s reorder point for motors?
d. If Litespeed has an opportunity to reduce either its order cost or its carrying cost by 10%, which of these would result in the lowest total cost at the associated new EOQ?
Economic Order QuantityEconomic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs. This production-scheduling model was developed in 1913 by Ford W. Harris and has...
Step by Step Answer:
a EOQ 1786 units b Safety stock 6365 X 200000 3288 c Reorder point lead time X daily usage safety ...View the full answer
Introduction to Corporate Finance What Companies Do
ISBN: 978-1111222284
3rd edition
Authors: John Graham, Scott Smart
