Question

A manufacturer has a production facility that requires 11,775 units of component JY21 per year. Following a long-term contract, the manufacturer purchases component JY21 from a supplier with a lead time of 6 days. The unit purchase cost is $30 per unit. The cost to place and process an order from the supplier is $166 per order. The unit inventory care cost per year is 15 percent of the unit purchase cost. The manufacturer operates 250 a year. Assume EOQ model is appropriate. If the manufacturer wants to minimize its ann inventory cost, the manufacturer should use an order quantity of order.

Answer 1

The manufacturer should use an order quantity of 56 units to minimize inventory costs using the EOQ model.

Step-by-step explanation:

In order to minimize inventory costs using the Economic Order Quantity (EOQ) model, the manufacturer should determine the optimal order quantity. The EOQ formula is given by: EOQ = √(2DS/H), Where: D is the demand or annual requirement (11,775 units), S is the setup or ordering cost ($166 per order), H is the holding or carrying cost (15% of the unit purchase cost)

Plugging in the values, we get: EOQ = √(2 * 11,775 * 166 / (0.15 * 30)), EOQ = √3138 EOQ ≈ 56 units (rounded to the nearest whole number). Therefore, the manufacturer should use an order quantity of 56 units in order to minimize inventory costs.