17.14. EOQ a. What are the carrying costs? Carrying costs = b. What are the rest

Question

17.14. EOQ    

               a. What are the carrying costs?

                       

                        Carrying costs =        

               b. What are the restocking costs?

                       

                        Restocking costs =

              

               c. Should the company increase or decrease its order size? Show work by calculating the EOQ, and number of orders per year.                                                                             

                       

                        EOQ =

                        The number of orders per year =

                        Is the firm’s policy optimal, why?

14. EOQ. The Trektronics store begins each month with 740 phasers in stock. This stock is depleted each month and reordered. If the carrying cost per phaser is $26 per year and the fixed order cost is S340, what is the total carrying cost? What is the restocking cost? Should the company increase or decrease its order size? Describe an optimal inventory policy for the nd order frequency.

Explanation / Answer

a. What are the carrying costs?

Expenses inccured on carrying inventory in stock are called as carrying costs.

For Example - intrest on capital locked up in inventory.rent of godawn,and issurence costs are inccured in carrying costs.

Carrying costs =   740 * $26 = $19,240

b. What are the restocking costs?

Expenses on requisitioning of a purchage order,expediting,transport and placeing the inventory in storege constitute ordering cost,

b. What are the restocking costs?

restocking costs = no of order * ordering cost per order

                               12 * $340 = $4080

   c. Should the company increase or decrease its order size? Show work by calculating the EOQ, and number of orders per year.

Yes company have to decrese their order size from 740 to 482 unit.

Anual cosumption = 740 * 12 = 8880

ordering cost per order = $340

Carrying cost per unit = $26

EOQ = UNDER ROOT 2*ANUAL CONSUMPTION OF MATERIAL * ORDERING COST PER ORDER * CARRYING COST PER UNIT

So EOQ = UNDER ROOT 2 * 8880 * $340 / $26 = 482 unit per order.

The number of orders per year = 8880 / 482 = 18.42 or 19 order approx

Is the firm’s policy optimal, why?

No firm policy are not optimal at persent situation because firm expend too much monry on carrying cost while ordering cost are lowear than carrying cost so firm have to decrese theire order size.and decrese carrying cost.

firm looks in batter situation if firm decrese their order size from 740 unit to 482 unit.and increse no of order from 12 to 19. then firm get optimal situation.

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