This problem entails knowing Inventory Control Subject to known demand. Based out of the book Production and Operations Analysis-5th edition ISBN 0072865385 which is almost Identical to 4th ed.
A local machine shop buys hex nuts and molly screws from the same supplier. The hex nuts cost 15 cents each and the molly screws cost 38 cents each. A setup cost of $100.00 is assumed for all orders. This includes the cost of tracking and receiving the orders. Holding costs are based on a 25% annual interest rate. The shop uses an average of 20,000 hex nuts and 14,000molly screws annually.
I need help to:
A- Determine the optimal size of the orders of hex nuts and molly screws, and the optimal time between placement of orders of these two items.
B--If both items are ordered and received simultaneously, the setup cost of $100.00 applies to the combined order. Compare the average annual cost of holding and setup if these items are ordered separately; if they are both ordered when the hex nuts would normally be ordered; and if they are both ordered when the molly screws would be normally ordered.
Solution contains calculations of :
3. Ordering cost.
4. the optimal time between placement of orders .
...Annual usage/EOQ = 15,000/5620 = 2.669 or 3 orders
Ordering cost = number of orders*per order cost = 2.669*$100 = $266.9
(Note that inventory and ordering costs are same confirming optimality of the EOQ)
Annual cost = $266.95 + $266.9 =