Cress Electronic Products manufactures components used in the automotive industry. Cress purchases parts for us in its manufacturing operation from a variety of different suppliers. One particular provider supplies a part where the assumptions of the EOQ model are realistic. The annual demand is 5000 units, the ordering cost is $80 per order, and the annual holding cost rate is 25%.
a) If the cost of the parts is $20 per unit, what is the economic order quantity?
b) Assume 250 days of operation per year. If the lead time for the order is 12 days, what is the reorder point?
c) If the lead time for the parts is 7 weeks (35 days), what is the reorder point?
d) What is the reorder point for part if the reorder point is expressed in terms of the inventory on hand rather than the inventory position?