Scenario 9.4
The Mwongola Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes. One of these gear assemblies, the "Smooth Shifter", is used for the two most expensive of Burdell's four models, and has an estimated annual demand of 300 units. Burdell estimates the cost to place an order is $40, and the holding cost for each assembly is $60 per year. The company operates 250 days per year.
-Use the information in Scenario 9.4. What is the cycle length (time between orders) when orders are placed using the EOQ quantity?
A) less than or equal to 5 days
B) greater than 5 days but less than or equal to 10 days
C) greater than 10 days but less than or equal to 15 days
D) greater than 15 days

Question

Quizplus · Accepted Answer

To find the cycle length when orders are placed using the Economic Order Quantity (EOQ), we first calculate the EOQ using the formula: $$EOQ = \sqrt{\frac{2DS}{H}}$$, where $D$ is the annual demand, $S$ is the ordering cost, and $H$ is the holding cost per unit per year. Plugging in the values from the scenario ($D = 300$, $S = 40$, $H = 60$), we get: $$EOQ = \sqrt{\frac{2*300*40}{60}} = \sqrt{400} = 20$$ units. The cycle length in days is then found by dividing the EOQ by the daily demand ($D$ divided by the number of operating days per year) and multiplying by the number of operating days per year to normalize it back to days: $$\text{Cycle Length} = \frac{EOQ}{\frac{D}{\text{operating days per year}}} = \frac{20}{\frac{300}{250}} = \frac{20}{1.2} = 16.67$$ days. This means the cycle length is greater than 15 days.

Scenario 9.4 The Mwongola Company Is a Small Manufacturing Company That Uses