3. The following inentory data have been established to for the adler corp: (1)

Question

3. The following inentory data have been established to for the adler corp:

(1) Orders must be placed in multiples of 100 units

(2) Annual sales are 338,000 units

(3) The purchase price per unnit is $3

(4) Carrying cost is 20% of the purchase price of goods

(5) Cost per order placed is $24

(6) Desired safety stock is 14,000 units. This amount is on hand anitially

(7) Two weeks are required for delivery

Questions:

a) What is the EOQ

b) How many orders should the firm place each year?

c) At what inventory level should a reorder be made? Reorder point= (safety stock + weeks of delivery x weekly usage) - goods in transit

d) Calculate the total cost of ordering and carrying inventories  if the order quantity is 1) 4,000 units, 2) is 4,800 units, 3) is 6,000 units. What are the total costs if the ordr quantity is is the EOQ?

e) What are the EOQ and total iventory costs if 1) sales increase to 500,000 units    2) Fixed order cost increase to $30 and sales remain at 338,000 units 3) Purchase price increases to $4 . Leave sale and fixed costs at original values

Explanation / Answer

a) the EOQ : SqRt(2 * 338000 * 24 / 3*20%) = 5200 units

b) No. of orders = 338000 / 5200 = 65 orders

c) inventory level should a reorder be made = Safety stock + EOQ = 14000 + 5200 = 15200 units

d)

the total inventory costs if the ordr quantity is is the EOQ = 5200*3 + (338000 *24/5200) + 5200 * 0.60 /2

= 15600 + 1560 + 1560 = $18720

e)

1. Sales = 500000 units

EOQ = SqRt(2 * 500000 * 24 / 3*20%) = 6324 or 6300 units

total inventory cost = 6300*3 + (338000 *24/6300) + 6300 * 0.60 /2 = $22080

2. Ordering cost = $30

EOQ = SqRt(2 * 338000 * 30 / 3*20%) = 5814 or 5800 units

total inventory cost = 5800*3 + (338000 *30/5800) + 5800 * 0.60 /2 = $20910

2. Purchase price = $4

EOQ = SqRt(2 * 338000 * 24 / 4*20%) = 4503 or 4500 units

total inventory cost =4500*4 + (338000 *24/4500) + 4500 * 0.80 /2 = $21624

order quantity cost of ordering cost of carrying inventories 4000 338000*24/4000 = $2028 4000 * 0.60 / 2 = $1200 4800 338000 *24/4800 = 1690 4800 * 0.60 /2 = $1440 6000 338000 *24/6000 = 1368 6000 * 0.60 /2 = $1800

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