Optimal Order Quantities In Your Studies This Week

Question

Optimal Order Quantitiesin Your Studies This Week You Found That The In your studies this week, you found that the optimal order quantity is achieved at the point at which inventory setup cost per unit of time equals inventory holding cost per unit of time. Knowing this, your employer, a manufacturer of office chairs, asks that you determine the optimal order quantity for two suppliers of coil springs. Your manufacturing facility operates 50 weeks a year and requires a steady supply of 1000 coil springs per week. Supplier A charges $1 for each spring, and you resell them for $4 each. The setup charge is $20 per order. An inventory carrying charge of 25% is incurred. In a two- to three-page APA formatted paper (not including the title and reference pages), provide the following: Complete the table and calculate the optimal order quantity for Supplier A: Units, Setup costs, Inventory carrying cost. Show equation used with all above values filled in. Provide the optimal order quantity of springs. Provide a similar table and calculate the optimal order quantity of springs for Supplier B. Supplier B charges $2 for each spring. The setup charge is $10 per order. All other variables remain the same as with Supplier A. The calculations assume that you are starting with a zero inventory balance. Discuss why zero inventory balance is or is not a desirable condition in most businesses. Be sure to include at least the three benefits of lower inventory carrying costs, having an inventory safety stock, and other potential benefits or risks. Include at least two scholarly sources in addition to the text to support your discussion and findings.

Dr. Jack HW Helper · Accepted Answer

The Economic Order Quantity (EOQ) model is a fundamental principle in inventory management, designed to identify the most cost-effective quantity of stock to order, considering both ordering and holding costs. This paper applies the EOQ formula to determine optimal order quantities for two suppliers of coil springs used in manufacturing office chairs, highlighting the implications of inventory policies, including the desirability of zero inventory balance and associated benefits and risks. The EOQ formula is expressed as: $$ EOQ = \sqrt{\frac{2DS}{H}} $$ Where: - D = annual demand, - S = setup or ordering cost per order, - H = holding or carrying cost per unit per year. Using data from the scenario: - Weekly demand = 1000 springs, - Operating weeks per year = 50, - Annual demand (D) = 1000 × 50 = 50,000 springs. Supplier A Calculations For Supplier A: - Cost per spring = $1, - Selling price per spring = $4, - Setup cost (S) = $20, - Inventory carrying rate = 25%, - Holding cost per unit per year (H) = 0.25 × price per spring = 0.25 × $1 = $0.25. Applying the EOQ formula: $$ EOQ_A = \sqrt{\frac{2 \times 50,000 \times 20}{0.25}} = \sqrt{\frac{2,000,000}{0.25}} = \sqrt{8,000,000} \approx 2828.43 $$ Therefore, the optimal order quantity for Supplier A is approximately 2,828 springs. Supplier B Calculations For Supplier B: - Cost per spring = $2, - Setup cost (S) = $10, - Holding cost per unit per year (H) = 0.25 × $2 = $0.50. Applying the EOQ formula: $$ EOQ_B = \sqrt{\frac{2 \times 50,000 \times 10}{0.50}} = \sqrt{\frac{1,000,000}{0.50}} = \sqrt{2,000,000} \approx 1414.21 $$ The optimal order quantity for Supplier B is approximately 1,414 springs. Discussion on Zero Inventory Balance Maintaining a zero inventory balance means that an organization places orders precisely when inventory is depleted, avoiding any stock on hand. This approach aligns with the Just-In-Time (JIT) inventory philosophy, which can significantly reduce holding costs and increase operational effic

Optimal Order Quantities In Your Studies This Week

Optimal Order Quantitiesin Your Studies This Week You Found That The

Paper For Above instruction

Supplier A Calculations

Supplier B Calculations

Discussion on Zero Inventory Balance

References