Sams Job Shop buys one part- Tegdiws for use in its production system. The parts are needed throughout the entire 365-day year. Tegdiws are used at a relatively constant rate and are ordered whenever the remaining quantity drops to the reorder level. Data for the product is as follows: ITEM TEGDIW WIDGET
Annual demand 10,000 5,000
Holding cost (% of item cost) 20% 20%
Setup or order cost $ 150.00 $ 25.00
Lead time 4 weeks 1 weeks
Safety stock 55 units 5 units
Item cost $ 10.00 $ 2.00
Required:
What is the inventory control system for Tegdiws? That is, what is the reorder quantity and the reorder point for Tegdiws?

The inventory control system for Tegdiws is 1224.74 Units, the re-order point for Tegdiws is 824.24 Units.

The economic order quantity is also called the inventory control system for Tegdiws.

Explanation:

Solution

Given that:

Now

For Tegdiws Company the following information is given below:

The Annual demand = 10,000

The cost of item = $10.00

The lead time (L)= 4 weeks

The safety cost =  55 units

The ordering cost (S)= $150.00

The holding cost (H) = 20%

The economic order quantity is referred to as the inventory control system for Tegdiws

Thus, we find the inventory control system for Tegdiws which is given below:

EOQ =√ 2DS/h

=√2*10000 *150/2

=1224.74 Units

The next step is to calculate the re-order point for Tegdiws company which is computed below:

R = dL + safety stock

Where

d = This is the demand done  weekly

which is,

d = 10000/52

=192.31

Thus,

R = (192.31 * 4) +55

= 120 + 11

=824.24 Units.

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