Question 1

Cole Ltd produces a specialized product; LOCKDOWN which has a constant monthly demand of 4000 units. The LOCKDOWN requires a component which Cole Ltd purchases from a supplier at $10 per unit. The component requires a three-day lead time from the date of order to the date of delivery. The ordering cost is $0.60 per order and the holiday cost is 10% per annum.

b. Assuming that there is no safety stock and that the present stock level is 400 components, when should the next order be placed? (Assume a 360-day year.)