Question

# An oil drilling company, AccuDrill, wear out drill at a rate of 4 per day. The drill is operated 5 days a week. 50

weeks a year. The bits cost $70 each, and the annual holding cost is 18 percent of purchase price. Ordering cost is $10 for each order. Assume the usage rate of drill bits is constant. Determine the following: show detail of your work

a. Annual demand for drill bits.

b. The economic order quantity

c. Maximum inventory of bits, assume no safety stock

d. the frequency with which drills are reordered

e. suppose a review of this process indicate that holding costs have increase to 25 percent due to increased opportunity costs, and that order is $12, what EOQ would now be appropriate?what cost penay would company incur by staying with former EOQ?

Cost Accounting