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A company requires 100 units per day of a particular part. It costs ₹100 to initiate a purchase order. A part kept in storage is estimated to cost about ₹ 0.02 per day. The lead time between placing and receiving an order is 12 days. The optimum inventory policy for ordering the part is
  • a)
    Order 1000 units whenever the inventory level drops to 200 units
  • b)
    Order 900 units whenever the inventory level drops to 150 units
  • c)
    Order 1200 units whenever the inventory level drops to 300 units
  • d)
    Order 800 units whenever the inventory level drops to 100 units
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
A company requires 100 units per day of a particular part. It costs ₹...
D = 100 units/day
Co = ₹ 100 per order
L = 12 days
C1 = ₹ 0.02 per unit per day
Cycle time, t = EOQ/D = 1000/100 = 10 days
Since the lead time, L = 12 days exceeds the cycle time t = 10
days,
Le = L - mt = 12 - 1 x 10 = 2 days
Largest integer, m ≤ L/t
≤ 12/10 = 1
The re-order point therefore occurs when the inventory level drops to Le X D = 2 x 100 = 200 parts.
Hence, the inventory policy for ordering the part is: Order 1000 units whenever the inventory level drops to 200 units
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A company requires 100 units per day of a particular part. It costs ₹100 to initiate a purchase order. A part kept in storage is estimated to cost about ₹ 0.02 per day. The lead time between placing and receiving an order is 12 days. The optimum inventory policy for ordering the part isa)Order 1000 units whenever the inventory level drops to 200 unitsb)Order 900 units whenever the inventory level drops to 150 unitsc)Order 1200 units whenever the inventory level drops to 300 unitsd)Order 800 units whenever the inventory level drops to 100 unitsCorrect answer is option 'A'. Can you explain this answer?
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