PROBLEM 9A-5 Economic Order Quantity; Safety Stock: Just-in-Time Purchasing Impact (LO6] Jones Metal Works Inc. uses a small casting in one of its finished products. The castings are purchased from a foundry located in another province. In total, Jones Metal Works Inc. pur- chases 54.000 castings per year at a cost of $32 per casting. The castings are used evenly in the production process throughout a 360-day production year. The company estimates that it costs $45 to place a single purchase order and about $6.00 to carry one part in inventory for a year. Delivery from the supplier generally takes 6 days, but it can take as many as 10 days. The days of delivery time and the percentage of their occurrence are shown in the following tabulation: Percentage of Occurrence 75 Delivery Time (Days) 6..... 7... 8. 9. 10. un nou lalom 100 Required: 1. Compute the EOQ 2. Assume that the company is willing to assume a 15% risk of being out of stock. What is the safety stock? The reorder point? 3. Assume that the company is willing to assume only a 5% risk of being out of stock. What is the safety stock? The reorder point? 4. Assume a 5% stock-out risk as stated in (3) above. What is the total cost of ordering and carrying inventory for one year? 5. Refer to the original data. Assume that the company decides to adopt JIT purchasing policies. This change allows the company to reduce its cost of placing a purchase order to only $15. Also, the company estimates that when the waste and inefficiency caused by inventories are considered, the true cost of carrying a unit in stock is $8.00 per year. Compute the EOQ b. How frequently would the company place an order, as compared to the old purchasing policy? a. PROBLEM 9A-5 Economic Order Quantity; Safety Stock: Just-in-Time Purchasing Impact (LO6] Jones Metal Works Inc. uses a small casting in one of its finished products. The castings are purchased from a foundry located in another province. In total, Jones Metal Works Inc. pur- chases 54.000 castings per year at a cost of $32 per casting. The castings are used evenly in the production process throughout a 360-day production year. The company estimates that it costs $45 to place a single purchase order and about $6.00 to carry one part in inventory for a year. Delivery from the supplier generally takes 6 days, but it can take as many as 10 days. The days of delivery time and the percentage of their occurrence are shown in the following tabulation: Percentage of Occurrence 75 Delivery Time (Days) 6..... 7... 8. 9. 10. un nou lalom 100 Required: 1. Compute the EOQ 2. Assume that the company is willing to assume a 15% risk of being out of stock. What is the safety stock? The reorder point? 3. Assume that the company is willing to assume only a 5% risk of being out of stock. What is the safety stock? The reorder point? 4. Assume a 5% stock-out risk as stated in (3) above. What is the total cost of ordering and carrying inventory for one year? 5. Refer to the original data. Assume that the company decides to adopt JIT purchasing policies. This change allows the company to reduce its cost of placing a purchase order to only $15. Also, the company estimates that when the waste and inefficiency caused by inventories are considered, the true cost of carrying a unit in stock is $8.00 per year. Compute the EOQ b. How frequently would the company place an order, as compared to the old purchasing policy? a
