Fiber Technology, Inc , manufactures glass fibers used in the communications industry The company's materials and parts manager is currently revising the inventory policy for XL 20, one of the chemicals used in the production process The chemical is purchased in 10 pound canisters for $96 each The firm uses 4,000 canisters per year The controller estimates that it costs $151 to place and receive a typical order of XL 20 The annual cost of storing XL 20 is $4 10 per canister Required Use the EOQ formula to determine the optimal order quantity What is the total annual cost of ordering and storing XL 20 at the economic order quantity How many orders will be placed per year Fiber Technologys controller, Jay Turnbull, recently attended a seminar on JIT purchasing Afterward he analyzed the cost of storing XL 20, including the costs of wasted space and inefficiency He was shocked when he concluded that the real annual holding cost was $20 20 per canister Turnbull then met with Doug Kaplan, Fiber Technologys purchasing manager Together they contacted Reno Industries, the supplier of XL 20, about a JIT purchasing arrangement After some discussion and negotiation, Kaplan concluded that the cost of placing an order for XL 20 could be reduced to just $21 Using these new cost estimates, Turnbull computed the new EOQ for XL 20 a Use the equation approach to compute the new EOQ b How many orders will be placed per year Required Prepare a table showing the total annual cost of ordering and storing XL 20 for each of the following order quantities 400, 1,000, and 2,000 canisters Now also assume that the lead time required to receive an order of XL 20 is one month Required Assuming stable usage of XL 20 each month, determine the reorder point for XL 20 Suppose that monthly usage of XL 20 fluctuates between 233 and 433 canisters, although annual demand remains constant at 4,000 canisters What level of safety stock should the materials and parts manager keep on hand for XL 20 What is the new reorder point for the chemical Order size 400 1000 2000 Number of orders Ordering cost Average inventory Holding costs Total annual costs

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Aug 16, 2024

Fiber Technology, Inc., manufactures glass fibers used in the communications industry. The company's materials and parts manager is currently revising the inventory policy for XL-20,

Fiber Technology, Inc., manufactures glass fibers used in the communications industry. The company's materials and parts manager is currently revising the inventory policy for XL-20, one of the chemicals used in the production process. The chemical is purchased in 10-pound canisters for $96 each. The firm uses 4,000 canisters per year. The controller estimates that it costs $151 to place and receive a typical order of XL-20. The annual cost of storing XL-20 is $4.10 per canister.

Required:

Use the EOQ formula to determine the optimal order quantity.
What is the total annual cost of ordering and storing XL-20 at the economic order quantity?
How many orders will be placed per year?
Fiber Technologys controller, Jay Turnbull, recently attended a seminar on JIT purchasing. Afterward he analyzed the cost of storing XL-20, including the costs of wasted space and inefficiency. He was shocked when he concluded that the real annual holding cost was $20.20 per canister. Turnbull then met with Doug Kaplan, Fiber Technologys purchasing manager. Together they contacted Reno Industries, the supplier of XL-20, about a JIT purchasing arrangement. After some discussion and negotiation, Kaplan concluded that the cost of placing an order for XL-20 could be reduced to just $21. Using these new cost estimates, Turnbull computed the new EOQ for XL-20.

a. Use the equation approach to compute the new EOQ.
b. How many orders will be placed per year?

Required:

Prepare a table showing the total annual cost of ordering and storing XL-20 for each of the following order quantities: 400, 1,000, and 2,000 canisters.

image text in transcribed

Now also assume that the lead time required to receive an order of XL-20 is one month. Required:

Assuming stable usage of XL-20 each month, determine the reorder point for XL-20.

Suppose that monthly usage of XL-20 fluctuates between 233 and 433 canisters, although annual demand remains constant at 4,000 canisters. What level of safety stock should the materials and parts manager keep on hand for XL-20? What is the new reorder point for the chemical?

Order size 400 1000 2000 Number of orders Ordering cost Average inventory Holding costs Total annual costs