. Custom Computers, Inc. assembles custom home computersystems. Th e heat sinks for the central processing units are boughtfor $12 each and are ordered in quantities of 1300 units. Annualdemand is 5200 heat sinks, the annual inventory holding cost is$3 per unit, and the cost to place an order is estimated to be $50.Assume that demand occurs continuously through the year andthat a new order is placed in time so the order arrives at the sametime as the previous inventory runs out.(a) Construct a base-case spreadsheet model to help analyzediff erent order quantities. Th e primary output of interestis the total annual inventory-related cost, comprisingtotal ordering cost and total holding cost. Holding costcan be applied to the average inventory level through theyear. Given the assumption about continuously occurringdemand and that orders arrive just in time, the averageinventory level will be half of the order quantity.(b) For the base-case order quantity of 1300 heat sinks, whatis the average inventory level, the number of orders placedper year, the total annual inventory holding cost, the totalannual ordering cost, and the total annual cost?(c) Repeat (b) for an order quantity of 650 heat sinks. Repeatfor 1950 heat sinks.(d) Th e Economic Order Quantity (EOQ) is defi ned as theorder quantity that minimizes total inventory-relatedcosts. Construct a Data Table and an XY chart and fi ndthe EOQ for this situation.(e) How much would ordering the EOQ save CustomComputers on an annual basis, compared to its currentorder quantity?
. Custom Computers, Inc. assembles custom home computer
systems. Th e heat sinks for the central processing units are bought
for $12 each and are ordered in quantities of 1300 units. Annual
demand is 5200 heat sinks, the annual inventory holding cost is
$3 per unit, and the cost to place an order is estimated to be $50.
Assume that demand occurs continuously through the year and
that a new order is placed in time so the order arrives at the same
time as the previous inventory runs out.
(a) Construct a base-case spreadsheet model to help analyze
diff erent order quantities. Th e primary output of interest
is the total annual inventory-related cost, comprising
total ordering cost and total holding cost. Holding cost
can be applied to the average inventory level through the
year. Given the assumption about continuously occurring
demand and that orders arrive just in time, the average
inventory level will be half of the order quantity.
(b) For the base-case order quantity of 1300 heat sinks, what
is the average inventory level, the number of orders placed
per year, the total annual inventory holding cost, the total
annual ordering cost, and the total annual cost?
(c) Repeat (b) for an order quantity of 650 heat sinks. Repeat
for 1950 heat sinks.
(d) Th e Economic Order Quantity (EOQ) is defi ned as the
order quantity that minimizes total inventory-related
costs. Construct a Data Table and an XY chart and fi nd
the EOQ for this situation.
(e) How much would ordering the EOQ save Custom
Computers on an annual basis, compared to its current
order quantity?
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