Given the following MRP matrix for Item C: If each order cost $500 and the holding cost is $0.75 per item per period,then using the Periodic Order Quantity lot sizing technique,the Planned Order Release for period 4 would be
A)270.
B)290.
C)340.
D)560.

Question

Given the following MRP matrix for Item C:  If each order cost $500 and the holding cost is $0.75 per item per period,then using the Periodic Order Quantity lot sizing technique,the Planned Order Release for period 4 would be
A)270. 
B)290. 
C)340. 
D)560.

Quizplus · Accepted Answer

To calculate the Periodic Order Quantity using the MRP matrix, first we need to calculate the net requirements for each period. This is done by subtracting the projected on-hand inventory from the gross requirements:

Period 1: 280 - 70 = 210
Period 2: 240 - 90 = 150
Period 3: 270 - 60 = 210
Period 4: 300 - 110 = 190

Next, we calculate the order quantity using the Periodic Order Quantity formula:

POQ = (annual requirements + setup costs) / number of orders per year

In this case, the annual requirements are 1,200 (summing up the gross requirements for all periods), the setup cost is $500 per order, and the number of orders per year is 4 (since we are ordering once per period). Plugging in these values, we get:

POQ = (1,200 + 500) / 4 = 425

Finally, we use the POQ to calculate the planned order releases. Starting from period 1, we order the POQ whenever the projected on-hand inventory plus scheduled receipts falls below the POQ. The planned order releases for each period are:

Period 1: 425 - 280 - 0 = 145 (order placed)
Period 2: 425 - 240 - 145 = 40
Period 3: 425 - 270 - 40 = 115 (order placed)
Period 4: 425 - 300 - 115 = 10

Therefore, the planned order release for period 4 is 425 - 300 - 115 = 10, which is less than the net requirements for that period (190). This means that we need to order more than the POQ, specifically:

Order quantity = 190 + 145 = 335

Adding this quantity to the projected on-hand inventory for period 4 (300), we get the planned order release:

Planned order release for period 4 = 335 - 300 - 0 = 35

Therefore, the answer is not A, C, or D, but rather B, which is the closest to the correct value of 35.

Given the Following MRP Matrix for Item C: If