Longhorn Traders is one of the largest RV dealers in Austin, Texas, and sells ab
ID: 2791390 • Letter: L
Question
Longhorn Traders is one of the largest RV dealers in Austin, Texas, and sells about 2,100 recreational vehicles a year. The cost of placing an order with Longhorn’s supplier is $1,000, and the inventory carrying costs are $290 for each RV. The company likes to maintain safety stock of 12 RVs. Most of its sales are made in either the spring or the fall. How many orders should the firm place this year? (Round intermediate calculations to 2 decimal places, e.g. 15.25 and final answer to 0 decimal places, e.g. 15.) The firm will place ___ orders this year.
Explanation / Answer
Annual sales = 2,100 units
Cost of placing an order = $1,000
Inventory Carrying cost per RV = $290
Safety Stock = 12 RVs
Economic Order Quantity = Square root of [ ( 2 x sales per period x Ordering cost ) / Carrying cost ]
EOQ = Square root of [ ( 2 x $2,100 x $1,000) / $290 ]
EOQ = 120.34 or 120
Number of orders the firm needs to place = 2,100 / 120 = 18 order
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