A Company Uses 1,500 Per Year of a Certain Subassembly

question 96

Essay

A company uses 1,500 per year of a certain subassembly that has an annual holding cost of $45 per unit.Each order placed costs $150.The company operates 300 days per year and it has found that an order must be placed with the supplier 6 working days before it can expect to receive that order.For this subassembly, find:
(a)the economic order quantity.
(b)the annual holding cost.
(c)the annual ordering cost.
(d)the reorder point.

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Definitions:

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value.

Bank Certificates

Short for "bank certificates of deposit (CDs)," which are time-deposit financial products offered by banks with fixed interest rates and maturity dates.

Money Market Funds

Investment funds that invest in short-term debt securities, offering high liquidity with a relatively low level of risk.

Restricted Cash

Cash that is not available for immediate use because it is reserved for a specific purpose.