Question

2. Annual demand for a famous speaker component for small stereo na for a famous speaker component for small stereo systems is 40,000. Collin Releford estimates that the ordering cost is $15 per order. Furthermore, carrying cost is estimated to be $3 per year. At this time, it takes 30 days between the time that Collin places an order and the time the order is received. During this time demand is 250 units. a) What is the optimal number of days between orders? b) What is total annual inventory cost? c) What would the average inventory be? d) Briefly explain the purpose of ABC Analysis e) Briefly explain the Importance of Inventory Control

Answer 1

	Annual Demand	D	40000
	Ordering Cost	S	15	Per order
	Carrying Cost	H	3	per year
	Lead time	L	30	days
	Demand in lead tiem	Dl	250	units
1	calculating Optimal quantity
	Q*=	sqrt( (2*D*S)/H)
	Q*	633
	Optimal no of orders	63	orders
	Days Betewwn Orders	6	days
2	Annual Inventory Cost
	Lead time inventory	250
	Total Lead time inventory in year( L*Optimal Orders)	15750
	Annula Inventory Cost	47250
3	Average invenotry will be the lead time demand		250	units
4	The purpose of ABC Analysis
	ABC analysis divides inventory to 3 classes . This method focuses on cirital parts and not trivial ones. Class A:high annual dollar volume Class B: Medium annul dollar volume Class C-Low annual dollar volume Focus for this analysis is the high dollar value items.
5	Inventory Control : is the critial part of any production. Inventory is cash invested and not yielding any return. The idea of inventory is to prevent stock outs which will be loss of fianacial value as well reputation. So Inventory Control has to be balanced between what level you want inventories to be and above which level it makes no financial sense. The Inventory control has several methodologies devleoped with Saftey stock concept and levle of service.