50. Thiewes Shoes begins each period with 100 pairs of hiking boots in stock. Th

Question

50. Thiewes Shoes begins each period with 100 pairs of hiking boots in stock. This stock is depleted each period and reordered. If the carrying cost per pair of boots per year is $3, what are the total carrying costs for the hiking boots? If they sell 600 pairs per year, how many times per year do they restock? If the restocking cost is $20 per order, what are the total restocking costs? What is their EOQ? What is total cost?

Total Carrying Cost: $150

Restocking Cost: $120

They restock about 6 times per year.

EOQ: 89.44 units

Total cost: 268.32

Answers are bolded. Not sure how to get them.

Explanation / Answer

Initial Inventory = 100 Pairs

Company sold = 600 pairs in the year

Ending stock = 0 pairs

Each order size has to be 100 pairs

Carrying stock = ((Initial + Ending) / 2 ) = (100 + 0) / 2 = 50 pairs

Carrying value = 50 * 3 = $150

Since total sales are 600 pairs and each order has to be 100 pairs, company has to order 600/100 = 6 times

So restocking costs = 6 * 20 = $120

EOQ can be calculated as follows

EOQ = SQRT(2 × Quantity × Cost Per Order / Carrying Cost Per Order)

= SQRT(2*600*20/3) = SQRT(8000) = 89.44 units

Total Cost:

Since Thiewes sells 600 pairs per year, it will restock 600/89.44 = 6.71 times.

The total restocking costs will be $20 X 6.71 = $134.16.

Average inventory will be 89.44/2 = 44.72.

The carrying costs will be $3 X44.72 = $134.16, the same as the restocking costs.

The total costs are thus $134.16 + $134.16 = $268.33

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