Economic Order Quantity Assignment
February 27th, 2020
Johnson Electricals (JE) stocks a certain switch connector (unit cost $125) at its central warehouse for supplying field service offices. The yearly demand for these connectors is 15,000 units.
JE estimates its annual holding cost for this item to be 20% of item cost. The cost to place and process an order from the supplier is $75. The company operates 300 days per year, and the lead time to receive an order from the supplier is 2 working days.
- Find the economic order quantity.
- Find the annual holding costs.
- Find the annual ordering costs.
- What is the reorder point?
- If JE orders at least 500 units, the supplier will reduce the unit cost to $120. Should JE stick to the EOQ of (a) or use a different order quantity? Justify your answer with cost calculations.
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