Solution
Chapter: 28
Problem: 3
INPUT DATA:
Fixed order cost (F) $24
Annual unit sales (S) 338,000
Carrying cost (C) 20%
Purchase price (P) $3
Desired safety stock 14,000
Order multiple 100
a. What is the EOQ?
EOQ = 5,200
b. How many orders should the firm place each year?
Optimal number of orders = 65
Weekly usage = 6,500
d. Calculate the total costs of ordering and carrying inventories if the order quantity is:
d. (1) 4,000 units.
(4) Carrying cost is 20 percent of the purchase price of goods.
(5) Cost per order placed is $24.
(6) Desired safety stock is 14,000 units; this amount is on hand initially.
The following inventory data have been established for the Alder Corporation:
(1) Orders must be placed in multiples of 100 units.
(2) Annual sales are 338,000 units.
(3) The purchase price per unit is $3.
(7) Two weeks are required for delivery.
Note: The red arrows in the upper right hand of a cell indicates a helpful comment. Click on the cell to see the comment.
c. At what inventory level should a reorder take place? [Hint: Reorder point = Safety Stock + (Weeks to deliver x Weekly usage)
– Goods in transit.
CP
FS2
EOQ =
number of units
Total
Inventory
Cost
Tot inv. cost @ 4,000 $11,628
Tot inventory cost @ EOQ $11,520
Refer to the formulas you
developed in parts (a)
through (d) and change the
inputs in the input section.
EOQ 5,200
Tot inventory cost @ EOQ $11,520
e. (3) Purchase price increases to $4? Leave sales and fixed costs at original values.
e. (1) Sales increase to 500,000 units?
e. (2) Fixed order costs increase to $30 while sales remain at 338,000 units.
d. (4) The EOQ number of units.
d. (2) 4,800 units.
d. (3) 6,000 units.
e. What are the EOQ and total inventory costs if
7/16/15
(4) Carrying cost is 20 percent of the purchase price of goods.
(5) Cost per order placed is $24.
(6) Desired safety stock is 14,000 units; this amount is on hand initially.
The following inventory data have been established for the Alder Corporation:
(1) Orders must be placed in multiples of 100 units.
(2) Annual sales are 338,000 units.
(3) The purchase price per unit is $3.
(7) Two weeks are required for delivery.
Note: The red arrows in the upper right hand of a cell indicates a helpful comment. Click on the cell to see the comment.
c. At what inventory level should a reorder take place? [Hint: Reorder point = Safety Stock + (Weeks to deliver x Weekly usage)
– Goods in transit.
d. Calculate the total costs of ordering and carrying inventories if the order quantity is:
d. (1) 4,000 units.
e. (3) Purchase price increases to $4? Leave sales and fixed costs at original values.
e. (1) Sales increase to 500,000 units?
e. (2) Fixed order costs increase to $30 while sales remain at 338,000 units.
d. (4) The EOQ number of units.
d. (2) 4,800 units.
d. (3) 6,000 units.
e. What are the EOQ and total inventory costs if