A Company Is Trying to Implement MRP but Is Having

question 45

Essay

A company is trying to implement MRP but is having trouble determining which order sizing method will minimize costs. Setup cost is $200 and holding cost is $2/period. If each period is 1 week, gross requirements are 270 units per 10 weeks, and there are 6 planned order releases for every 10 weeks, calculate the cost for lot-for-lot compared to EOQ for an entire year. Assume that EOQ and lot-for-lot are computed as though the usage will occur continually throughout the year.

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Definitions:

Cournot Equilibrium Price

A concept in economics where firms reach a state in which each firm chooses the quantity to produce to maximize its profit, given the quantities chosen by other firms in the market.

Inverse Demand Function

A mathematical representation showing the relationship between the price of a good and the quantity demanded, expressed as price as a function of quantity.

Unit Cost

The cost incurred to produce, store, and sell one unit of a product or service.

Bertrand Model

An economic model that describes interactions between firms that compete by setting prices, assuming products are perfect substitutes.