1. Gursoy Manufacturing Company originally estimated its annual demand for item XYZ as 8000 units per year at a unit cost of $10. The order cost is $30 and the holding cost per unit is $3 annually. Gursoy has discovered at the end of the year that annual demand is only 6000 units and holding cost per unit per year are closer to $4. The only good news is that Gursoy figured orders cost $25 to place instead of $30 each. Gursoy now wants to know the significance of these mistakes on last year's decisions. a) What was the combined effect of these errors on the economic order quantity for item XYZ? b) What was the individual effect of each error on item XYZ economic order quantity? c) What was the combined effect of these errors on the minimum total variable cost (fixed order cost and holding cost) of item XYZ for last year? d) What was the individual effects of each error in demand on the minimum total variable cost for last year?

1. Gursoy Manufacturing Company originally estimated its annual demand for item XYZ as 8000 units per year at a unit cost of $10. The order cost is $30 and the holding cost per unit is $3 annually. Gursoy has discovered at the end of the year that annual demand is only 6000 units and holding cost per unit per year are closer to $4. The only good news is that Gursoy figured orders cost $25 to place instead of $30 each. Gursoy now wants to know the significance of these mistakes on last year's decisions. a) What was the combined effect of these errors on the economic order quantity for item XYZ? b) What was the individual effect of each error on item XYZ economic order quantity? c) What was the combined effect of these errors on the minimum total variable cost (fixed order cost and holding cost) of item XYZ for last year? d) What was the individual effects of each error in demand on the minimum total variable cost for last year?

Purchasing and Supply Chain Management

6th Edition

ISBN:9781285869681

Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Chapter16: Lean Supply Chain Management

Section: Chapter Questions

Problem 10DQ: The chapter presented various approaches for the control of inventory investment. Discuss three...

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