Williams Corporation is a major manufacturer of food processors. It purchases motors from Campbell Corporation. Annual demand is 325,000 motors per year or 6,250 motors per week. The ordering cost is $600 per order. The annual carrying cost is $15.60 per motor. It currently takes 2 weeks to supply an order to the assembly plant. Read the requirements. Requirement 1. What is the optimal number of motors that Williams's managers should order according to the EOQ model? Begin by selecting the formula used to calculate EOQ. (D = Demand in units for one year, P = Ordering cost per purchase order, C = Carrying cost of one unit in stock, Q = Any order quantity) EOQ = 2DP C The optimal number of motors per order is 5,000 motors. Requirement 2. At what point should managers reorder the motors, assuming that both demand and purchase-order lead time are known with certainty? Determine the formula used to calculate the reorder point for reordering motors, then calculate the reorder point. Demand per week Purchasing lead time (wks) Reorder point 12,500 motors 6,250 2. Requirement 3. Now assume that demand can vary during the 2-week purchase-order lead time. The table shows the probability distribution of various demand levels. If Williams runs out of stock, it would have to rush order the motors at an additional cost of $3 per motor. How much safety stock should the assembly plant hold? How will this affect the reorder point and reorder quantity? The assembly plant should hold Demand 5000 motors as safety stock because when this number of motors are held, the total stockout and carrying costs are the lowest - Total Demand for Motors for 2 Weeks Probability of Demand (sums to 1) 12,000 0.50 8,000 0.10 12,500 0.20 12,720 0.10 12,850 0.10 - X Requirements 1. What is the optimal number of motors that Williams's managers should order according to the EOQ model? 2. At what point should managers reorder the motors, assuming that both demand and purchase-order lead time are known with certainty? 3. Now assume that demand can vary during the 2-week purchase-order lead time. The following table shows the probability distribution of various demand levels: Total Demand for Motors for 2 Weeks Probability of Demand (sums to 1) 12,000 0.50 8,000 0.10 12,500 0.20 12,720 0.10 12,850 0.10 If Williams runs out of stock, it would have to rush order the motors at an additional cost of $3 per motor. How much safety stock should the assembly plant hold? How will this affect the reorder point and reorder quantity