Exercise- Economic Order Quantity
For each of the following independent cases, use the equation method to compute the economic order quantity.
Case A Case B Case C
Annual requirement in units...................13,230 1,681 560
Cost per order...................................... $250 $40 $10
Annual holding cost per unit .................. . 6 20 7
Andrew and Fulton, Inc. uses 780 tons of a chemical bonding agent each year. Monthly demand fluctu-ates between 50 and 80 tons. The lead time for each order is one month, and the economic order quantity is 130 tons.
Required:
1. Determine the safety stock appropriate for the chemical bonding agent.
2. At what order point, in terms of tons remaining in inventory, should Andrew and Fulton, Inc. order the bonding agent?