Rally Communications Company manufactures glass fibres used in the communications industry. The companys materials and parts manager
Question:
Rally Communications Company manufactures glass fibres used in the communications industry. The companys materials and parts manager is currently revising the inventory ordering policy for XL-20, one of the chemicals used in the production process. The chemical is purchased in 10-kilogram canisters for $95 each. The firm uses 4,100 canisters per year. The accountant estimates that the incremental costs of ordering and receiving XL-20 are $143 per order. The annual cost of storing XL-20 is $3.30 per canister. |
Required: |
1. | Use the EOQ formula to determine the optimal order quantity for XL-20.(Round your answer to the nearest whole number.) |
Economic order quantity |
2. | What is the total annual cost of ordering and storing XL-20 at the economic order quantity?(Do not round intermediate calculations. Round your answer to 2 decimal places.) |
Total annual cost of ordering and storing | $ |
3. | How many orders will be placed per year?(Do not round intermediate calculations. Round your answer to the nearest whole number.) |
Number of orders per year |
4. | Rallys accountant, Frank Mallard, recently attended a seminar on JIT purchasing. Afterwards, he analysed the cost of storing XL-20, including the cost of wasted space and inefficiency. He was shocked to find that the real annual carrying cost was $20 per canister. Mallard then met with Doug Kaplan, Rallys purchasing manager. Together they contacted Chemical 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 $37. |
a. | Calculate the new EOQ for XL-20.(Do not round intermediate calculations. Round your answer to the nearest whole number.) |
Economic order quantity |
b. | How many orders will be placed per year?(Do not round intermediate calculations. Round your answer to the nearest whole number.) |
Number of orders per year |
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