15. (Comprehensive EOQ calculations) Knutson Products Inc. is involved in the pr
ID: 2681992 • Letter: 1
Question
15. (Comprehensive EOQ calculations) Knutson Products Inc. is involved in the production of airplane parts and has the following inventory, carrying, and storage costs:1. Orders must be placed in round lots of 100 units.
2. Annual unit usage is 250,000. (Assume a 50-week year in your calculations.)
3. The carrying cost is 10 percent of the purchase price.
4. The purchase price is $10 per unit.
5. The ordering cost is $100 per order.
6. The desired safety stock is 5,000 units. (This does not include delivery-time stock.)
7. The delivery time is 1 week.
Given the forgoing information:
a. Determine the optimal EOQ level.
EoQ=?[(2x25000x100)/(10x.1)]= 2236.068
b. How many orders will be placed annually?
c. What is the inventory order point? (That is, at what level of inventory should a new order be placed?)
d. What is the average inventory level?
e. What would happen to the EOQ if annual unit sales doubled (all other unit costs and safety stocks remaining constant)? What is the elasticity of EOQ with respect to sales? (That is, what is the percentage change in EOQ divided by the percentage change in sales?)
Explanation / Answer
15. (Comprehensive EOQ calculations) Knutson Products Inc. is involved in the production of airplane parts and has the following inventory, carrying, and storage costs:
1. Orders must be placed in round lots of 100 units.
2. Annual unit usage is 250,000. (Assume a 50-week year in your calculations.)
3. The carrying cost is 10 percent of the purchase price.
4. The purchase price is $10 per unit.
5. The ordering cost is $100 per order.
6. The desired safety stock is 5,000 units. (This does not include delivery-time stock.)
7. The delivery time is 1 week.
Given the forgoing information:
a. Determine the optimal EOQ level.
a. EOQ = square root of 2SO/C= square root of 2 (250,000 X100 ) /1 =7,071
= = 7,071 units or 7,100 units
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