Consider the following information about an end product item — Ordering cost 90/order — Annual demand 936 — Inventory carrying 2/unit/week Notice unit change

Consider the following information about an end product item:

Ordering cost = $90/order

Annual demand = 936

Inventory carrying cost = $2/unit/week. (Notice the unit change)

a. How many orders should we place per year (52 weeks) to replenish inventory of the item based on average weekly demand?

b. Given the following time-phased net requirements from an MRP record for this item, determine the sequence of planned orders using economic order quantity and periodic order quantity procedures. Assume lead time equals zero and current on-hand inventory equals zero. Calculate the inventory carrying cost on the basis of weekly ending inventory values. Which procedure produces the lowest total cost for the eight-week period?

SOLUTION

a.

b.