The Trektronics store begins each month with 650 phasers in stock. This stock is

Question

The Trektronics store begins each month with 650 phasers in stock. This stock is depleted each month and reordered. The carrying cost per phaser is $26 per year and the fixed order cost is $510. (Enter your answer as directed, but do not round intermediate calculations.) Requirement 1: What is the total carrying cost? Carrying costs $ Requirement 2: What is the restocking cost? Restocking costs $ Requirement 3: Calculate the economic order quantity. (Round your answer to 2 decimal places (e.g., 32.16).) Economic order quantity Requirement 4: Calculate the optimal number of orders per year. (Round your answer to 2 decimal places (e.g., 32.16).) Number of orders per year Requirement 5: Should the company increase or decrease its order size?

Explanation / Answer

Solution:

Total carrying cost = carrying cost * average inventory per year

= 26*650*12 = 202800

The restocking cost = Fixed cost + carrying cost = 510 + 26 = 536

Economic order quantity = (2*fixed cost per order * demand per year /carrying cost per unit per year )^1/2

= (2* 510*650*12/ 26)^12

hence EOQ = 553

Optimal number of orders per year = Total demand /EOQ = 650*12/ 553 = 14 times

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