Scenario 9.3
The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volume assemblies, the XO-01, has an estimated annual demand of 8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $20 per year. The company operates 250 days per year.
-Use the information in Scenario 9.3. What is the cycle length (time between orders) when orders are placed using the EOQ quantity?
A) less than 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

The cycle length is the time between orders. The EOQ is the economic order quantity, which is the quantity that minimizes the total inventory cost. The total inventory cost is the sum of the ordering cost and the holding cost. The ordering cost is the cost to place an order, and the holding cost is the cost to hold one unit of inventory for one year. The EOQ is given by the following formula:```EOQ = sqrt((2*D*O)/H)```where:* D is the annual demand* O is the ordering cost* H is the holding costIn this case, the annual demand is 8,000 units, the ordering cost is $50, and the holding cost is $20 per year. Substituting these values into the formula, we get:```EOQ = sqrt((2*8,000*$50)/$20) = 400 units```The cycle length is the time between orders. The cycle length is equal to the EOQ divided by the daily demand. The daily demand is the annual demand divided by the number of days per year that the company operates. In this case, the company operates 250 days per year. Substituting these values into the formula, we get:```Cycle length = EOQ / daily demand = 400 units / (8,000 units / 250 days) = 12.5 days```Therefore, the cycle length is greater than 5 days but less than or equal to 10 days.

Scenario 9.3 The Talbot Company Uses Electrical Assemblies to Produce an Array