Scribd
Upload
2K views3 pages

Copy of Copy of Gentle Electric Part 2

The document provides an analysis to determine the optimal ordering policy for transformers at Gentle Electric Company. It outlines the components that make up the total annual cost, including material cost, ordering cost, inventory carrying cost, transportation cost, unloading cost, and additional warehouse space cost. Formulas are provided for calculating each cost component based on information compiled. The analysis recommends an order quantity of 600,000 units, which implies 4 orders per year. The total estimated annual cost following this policy is $638,550.

Uploaded by

inekelechi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
2K views3 pages

Copy of Copy of Gentle Electric Part 2

The document provides an analysis to determine the optimal ordering policy for transformers at Gentle Electric Company. It outlines the components that make up the total annual cost, including material cost, ordering cost, inventory carrying cost, transportation cost, unloading cost, and additional warehouse space cost. Formulas are provided for calculating each cost component based on information compiled. The analysis recommends an order quantity of 600,000 units, which implies 4 orders per year. The total estimated annual cost following this policy is $638,550.

Uploaded by

inekelechi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

Exercise Solution

Gentle Electric Company


Name: Uzoigwe kelechi_jennifer
Objective: To decide the ordering policy at Gentle electric for transformers used in the
production of control units for passenger and freight elevators.
Analysis: With the information compiled my Mr. Edison we can calculate the total inventory
cost for gentle electric. The total annual cost equation can be written as below.
Annual Total Cost = Material cost + Ordering cost + Inventory Carrying cost + Transportation
cost + Unloading cost + Additional warehouse space cost (when required)
Please provide your logic/formula used to calculate the following cost components.
Material Cost:total fixed costs +total cost \total unit produced
Ordering Cost:fixed cost*requisitions per number of orders in a year *cost of each order
Inventory Holding cost:
This is calculated as a fraction of the inventory investment x the average inventory, The holding
cost will be H = I x Cu x (Q/2) where:
Q is the order quantity under consideration. Given that you do not have information about the
lead time and the demand, assume a constant rate of depletion for the inventory thus the average
inventory will be Q/2.
I is the fraction of the inventory investment representing the holding cost.
Cu is the cost per unit.
Transportation cost: full load *per car load+LCL units*shipping cost per unit =(per mile cost
*weight per unit*distance)
Additional warehouse space cost: total volume ordered +cost per unit of order
Unloading cost: fixed cost *cost per unit *cost of loading*quantity sent +quantity received

Based on the analysis the recommended order quantity 600000 units, which implies 4.0
requisitions per year and the total estimated cost of following this recommended order
policy is $ 638550.00.

Exercise Solution

Exercise Solution
Appendix:
Please insert a copy of the table from excel and a graph of the final cost behavior as it changes with order Quantity.

You might also like