A machining area produces part QR for use in an adjacent assembly area. Estimated annual demand for the part is 20,000 units. The value of the part is $50 per unit. The annual carrying and handling cost rate is estimated to be 16%.
The plant operates 250 days a year. The assembly area uses one part QR for each product, and it produces 100 products per day. When producing part QR, the machining area can produce 200 units per day. The cost of ordering and setup for part QR is $200.
1. What is the economic order quantity?
2. Suppose the assembly area places an order whenever the on-hand amount of part QR reaches a certain level, the reorder point. If it takes the machining area 2 weeks to begin filling an order, and if the assembly area wants to maintain a minimum, or safety stock of 200 units, at what on-hand quantity should an order be plated (i.e., what is the reorder point)?
3. If part QR were ordered from a supplier for the same costs, and the supplier delivered the entire order all at once, what would the order quantity be?