* Orders must be placed in round lots of 100 units *Annual unit usage is 250,000
ID: 2682010 • Letter: #
Question
* Orders must be placed in round lots of 100 units *Annual unit usage is 250,000. (Assume a 50-week year in your calculations.) *The carrying cost is 10 percent of the purchase price. *The purchase price is $10 per unit. *The ordering cost is $100 per order. *The desired safety stock is 5,000 units. (This does not include delivery-time stock.). *The delivery time is 1 week. Given the forgoing information:
a) How many orders will be placed annually? b) What is the inventory order point? (That is, at what level of inventory should a new order be placed?) c) What is the average inventory level? d) 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?) e) If carrying costs double, what will happen to the EOQ level? (Assume the original sales level of 250,000 units.) What is the elasticity of EOQ with respect to carrying costs? f) Determine the optimal EOQ level
Explanation / Answer
The carrying cost is 10 percent of the purchase price The purchase price is $10 per unit. The ordering cost is $100 per order. The desired Safety stock is 5,000 units Annual unit usage is 250,000 a) Number of orders per year = annual demand /order quantity = 250,000 / 100 = 2500 times per year b) c) Average inventory = order quantity / 2 = 100 / 2 = 50 Units d)
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