A Manufacturing Company Is Trying to Determine the Best Lot

Essay

A manufacturing company is trying to determine the best lot sizing approach to take when developing a market requirements planning (MRP) schedule: lot-for-lot (LFL), fixed-order quantity (FOQ) using the economic order quantity (EOQ), or periodic-order quantity (POQ). The ordering cost is $504 per order, the inventory-carrying cost is $1 per week per unit, and the annual demand for the product is 15,000 units. They are using a work schedule for a 50-week work year. They are disregarding the effects of initial inventory and safety stock at the present time. The estimated net requirements for their product for the next six weeks are:
$\begin{array}{|l|l|l|l|l|l|l|}\hline \text { Week } & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Net Requirements } & 100 & 400 & 200 & 350 & 600 & 50 \\\hline\end{array}$
a. Using LFL, what is the size of the production lot in week 3?
b. Using LFL, what is the total cost for this method?
c. What is the EOQ needed?
d. What is the beginning inventory in week 4 using the FOQ method?
e. What is the total cost for using the FOQ approach?
f. What is the POQ size for production lots?
g. What is the ending inventory for week 5 using the POQ method?
h. What is the total cost using the POQ approach?