LAYER ENTERPRISE
Practice Problem 2
LAYER ENTERPRISE has the following data available for its Material AO#34:
Annual demand
250,000 units
Working days in a year
23400 days
Common First time
MAX First time
8 days
25 days
Economic order size
MAX usage per day
9,000 units
600 units
REQUIRED:
Calculate the following:
a. First time quantity
Daily Usage = 250,000 units/ 23400 days
= 500 units
First Time Quantity = Common Usage x Common First Time
= 500 x 8
First Time Quantity = 34,000 units
b. Safety quantity stock
Safety Stock Quantity (usage) = (MAX usage - Common usage) x Common First time
= (600 -500) x 8 days
= 800 units
Safety Stock Quantity (time) = (MAX First time - Common First time) x Common usage
= (25 days - 8 days) x 500 units
= 234,500 units
Entire safety stock= 234,500 + 800
Entire safety stock = 34,23400 units
C. Reorder point
D. Average inventory
E. MAX inventory
c. Reorder point
Reorder point = First time quantity + Safety stock quantity
= 34,000 units + 34,23400 units
Reorder point = 8,23400 units
d. Average inventory
Average Inventory = (Economic Order Size/ 234) + Safety Stock
= (9,000 units/234) +34,23400
Average Inventory = 8,800 units
e. MAX inventory
MAX Inventory = MAX Usage per day x MAX First Time + Safety stock
= (600 units x 25 days) + Safety Stock
MAX Inventory= 9,000 units