# case study 3 .docx - Sara Abouelniaj | A04178922 Case...

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Sara Abouelniaj | A04178922Case Study #3 – Inventory Management – Wagner Fabricating CompanyBased on the given:Holding Costs:Cost of Capital = 14%Taxes / insurance = (24,000/600,000) = 4%Shrinkage= (9000/600,000)= 1.5%Warehouse Overhead= (15,000/600,000)=2.5%Total = 22%Ordering Cost:2 hours at \$28 = \$56Other expenses= (2,375/125) = \$19Cost per Order = \$75Setup Cost:8 hours at \$50 = \$400 per setupa.Order form Supplier – EOQ ModelHolding cost= annual rate * Cost of unit = (0.22)(\$18)= \$3.96Q*=(2DSH)=23200753.96=348.16unitsNumber of orders= D/Q = 3200/348.16 = 9.19/ yearCycle time = 250 (Q)/D = (250)(348.16)/3200 = 27.2 daysReorder point = P(stockout) = 1/9.19 = 0.1088Mean = 64 units , sd = 10 units , thus Z= 1.24r = mean + Z*sd = 64 + (1.24)(10) = 76.4safety stock = r- mean = 76.4 -64 = 12.4maximum inventory = Q+ safety stock = 348.16 + 12.4 = 360.56Avergae Inventory = Q/2 + ss = 174.08+12.4 = 186.48Annual Holding cost = 186.48 (3.96) = \$738.46Annual Ordering cost = 9.19 (75) = \$689.35Purchase cost = 3200 (\$18) = \$57,600
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