Consider a manufacturer of automobile dashboard that uses a certain hinge, which costs $8.50 per hinge. The forecast is for 1,500,000 annually, spread evenly across the year. The annual holding cost rate used is 35% and the ordering cost is estimated to be $480. The lead time from order to receipt is 5 weeks.
a. If orders were placed using a fixed order quantity model, calculate the optimal economic order quantity (EOQ). If this EOQ is implemented, about how often (in days) will orders be placed? About how many orders will be placed in a year?
b. If the ordering cost is reduced to $120 (from $480), what would be the optimal economic order quantity, the number of orders per year, and the length of time between orders (in days)?
c. Assume that quantity discounts were available as follows: $8.25 per unit if more than 20,000 hinges are ordered, $8.00per unit if more than 40,000 hinges are ordered, and $7.75 per unit if more than 60,000 hinges are ordered. Calculate the optimal order quantity (assume the ordering cost is $480).