A firm has the following gross requirements for Item F.If ordering costs are $60 per order and carrying costs are $0.50 per period. If L4L ordering is used the planned order releases is
A)40 in period 1 and 0 in period 3
B)80 in period 2 and 60 in period 3
C)60 in period 2 and 80 in period 3
D)0 in period 1 and 40 in period 3

Question

A firm has the following gross requirements for Item F.If ordering costs are $60 per order and carrying costs are $0.50 per period.  If L4L ordering is used the planned order releases is
A)40 in period 1 and 0 in period 3 
B)80 in period 2 and 60 in period 3 
C)60 in period 2 and 80 in period 3 
D)0 in period 1 and 40 in period 3

Quizplus · Accepted Answer

Using L4L, the planned order releases will be equal to the gross requirements. Therefore, in period 1, the planned order release will be 40 (equal to the gross requirement for that period). In period 2, the total gross requirement is 80 (40 from period 2 and 40 from period 3), so the planned order release will be 80. In period 3, the remaining gross requirement is 40, so the planned order release will be 40. This results in a total of 160 units ordered over 2 orders (1 in period 1 and 1 in period 2), with a total ordering cost of $120 ($60 per order) and a total carrying cost of $80 (160 units x $0.50 per unit per period x 2 periods).

A Firm Has the Following Gross Requirements for Item F