Question

Morrison Manufacturing produces casings for sewing machines: large and small. To produce the different casings, equipment must be set up. The setup cost per production run is $18,000 for either casing. The cost of carrying small casings in inventory is $6 per casing per year; the cost of large casings is $18 per unit per year. To satisfy demand, the company produces 2,400,000 small casings and 800,000 large casings. Assume the economic lot size for small casings is 120,000 and that of the large casings is 40,000. Morrison Manufacturing sells an average of 9,600 small casings per workday and an average of 3,200 large casings per workday. It takes Morrison two days to set up the equipment for small or large casings. Once set up, it takes three workdays to produce a batch of small casings and five days for large casings. There are 250 workdays available per year. What is the reorder point

Answer 1

Answer:

48,000 small castings

Explanation:

The computation of the reorder point is shown below:

As we know that

Reorder Point = Average sales made per day × (set up time required + Production time required)

where,

Average sales per day is 9,600

Set up required is 2

And, the production time required is 3

Now placing these values to the above formula

So, the reorder point is

= 9,600 × (2 + 3)

= 48,000 small castings