Access over 20 million homework & study documents

Problem 4. A firm is faced with the attractive situation in which it can obtain immediate delivery o

Content type
User Generated
Subject
Management
Type
Homework
Rating
Showing Page:
1/2
Problem 4.
A firm is faced with the attractive situation in which it can obtain immediate delivery of an item it stocks for retail sale.
The firm has therefore not bothered to order the item in any systematic way. However, recently profits have been
squeezed due to increasing competitive pressures, and the firm has retained a management consultant to study its
inventory management. The consultant has determined that the various costs associated with making an order for the
item stocked are approximately $70 per order. She has also determined that the costs of carrying the item in
inventory amount to approximately $27 per unit per year (primarily direct storage costs and forgone profit on
investment in inventory). Demand for the item is reasonably constant over time, and the forecast is for 16,500 units
per year. When an order is placed for the item, the entire order is immediately delivered to the firm by the supplier.
The firm operates 6 days a week plus a few Sundays, or approximately 320 days per year. Determine the following:
a. Optimal order quantity per order
b. Total annual inventory costs
c. Optimal number of orders to place per year
d. Number of operating days between orders, based on the optimal ordering.
ANSWER
Order cost (C)= $70
Carrying cost (H) = $27 per unit per year
Demand (D) = 16,500 units per year
a. EOQ = SQRT( 2*D*C)/H
= SQRT*(2*16,500*70/27) = SQRT*8555.555
= 292.5
B and c.
Number of orders per year = Demand requirements / EOQ
= 16,500 / 292.5 = 56.41
Total annual inventory cost = Total order cost + total carrying cost
= 56.41 *70 + 27* (292.5/2)
= 3948.7+ 3948.75
= $ 7897.45
d. . Number of operating days between orders, based on the optimal ordering

Sign up to view the full document!

lock_open Sign Up
Showing Page:
2/2

Sign up to view the full document!

lock_open Sign Up
Unformatted Attachment Preview
Problem 4. A firm is faced with the attractive situation in which it can obtain immediate delivery of an item it stocks for retail sale. The firm has therefore not bothered to order the item in any systematic way. However, recently profits have been squeezed due to increasing competitive pressures, and the firm has retained a management consultant to study its inventory management. The consultant has determined that the various costs associated with making an order for the item stocked are approximately $70 per order. She has also determined that the costs of carrying the item in inventory ...
Purchase document to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Anonymous
Awesome! Made my life easier.

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Similar Documents