Fan Base (FB) operates a megastore featuring sports merchandise. It uses an EOQ
ID: 2473751 • Letter: F
Question
Fan Base (FB) operates a megastore featuring sports merchandise. It uses an EOQ decision model to make inventory decisions. It is now considering inventory decisions for its Los Angeles Galaxy soccer jerseys product line. This is a highly popular item. The data for 2013 is as follows: Expected annual demand for Galaxy jerseys 10,000 Ordering cost per purchase order $200 Carrying cost per year $7 per jersey Each jersey costs FB $40 and sells for $80. The $7 carrying cost per jersey per year cons ists of the required return on investment of $4.80 (12% * $40 purchase price) plus $2.20 in relevant insurance, handling, and storage costs. The purchasing lead time is 7 days. FB is open 365 days a year. Answer the following questions: 1. Calculate the EOQ . 2. Calculate the number of orders that will be placed each year. 3. Calculate the reorder point
Explanation / Answer
Solution:
Expected annual demand for Galaxy jerseys = 10,000
Ordering cost per purchase order = $200
Carrying cost per year per jersey = $7
1)
EOQ = [(2 x Annual Demand x Ordering Cost per order) / Carrying Cost per jersey per year]1/2
= [(2 x 10,000 x 200) / $7]1/2
= 756 Jersey
2)
Number of orders that will be placed each year = Annual Demand / EOQ = $10,000 / 756 = 13.23 Orders or 14 Orders
3)
Re-order point = Average Daily Usage x Lead Time = 10,000 / 365 x 7 = 191.78 or 192 Units
Note--- Carrying Cost includes opportunity cost of capital involved in maitaining or holding the inventory each time in stock.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.