Westside Auto purchases a component used in the manufacture of automobile generators directly from the supplier. Westside's generator production operation, which is operated at a constant rate, will require 1,000 components per month throughout the year (12,000 units annually). Assume that the ordering costs are $25.00 per order, the unit cost is $2.50 per component, and the annual holding costs are 20% of the value of the inventory. Westside has 250 working days per year and a lead time of 5 days. Answer the following inventory policy questions.
a) What is the EOQ for this component?
b) What is the annual inventory holding cost?
c) What are the total annual inventory costs associated with your recommended EOQ?
d) How many orders per year would be placed?
e) What is the ROP?