This problem entails knowing Inventory Control Subject to known demand. Based out of the book Production and Operations Analysis-5th edition ISBN 0072865385 which is almost Identical to 4th ed.
A local machine shop buys hex nuts and molly screws from the same supplier. The hex nuts cost 15 cents each and the molly screws cost 38 cents each. A setup cost of $100.00 is assumed for all orders. This includes the cost of tracking and receiving the orders. Holding costs are based on a 25% annual interest rate. The shop uses an average of 20,000 hex nuts and 14,000molly screws annually.
I need help to:
Q1. Determine the optimal size of the orders of hex nuts and molly screws, and the optimal time between placement of orders of these two items.
Q2. If both items are ordered and received simultaneously, the setup cost of $100.00 applies to the combined order. Compare the average annual cost of holding and setup if these items are ordered separately; if they are both ordered when the hex nuts would normally be ordered; and if they are both ordered when the molly screws would be normally ordered.