Tele-Reco is a new specialty store that sells television sets, videotape recorde

Question

Tele-Reco is a new specialty store that sells television sets, videotape recorders, video games, and other television-related products. A new Japanese-manufactured videotape recorder costs Tele-Reco $600 per unit. Tele-Reco’s annual holding cost rate is 22%. Or- dering costs are estimated to be $70 per order.

a. If demand for the new videotape recorder is expected to be constant with a rate of 20 units per month, what is the recommended order quantity for the videotape recorder?

b.What are the estimated annual inventory holding and ordering costs associated with this product?

c. How many orders will be placed per year?

d. With 250 working days per year, what is the cycle time for this product?

Solve in Excel

Explanation / Answer

Ans:

a)How many VCRs to order?

D = 20*12 = 240 per year

Q* = ((2*240*70)/(0.22*600)^0.5 = 16 units

b) Annual order cost = 240*70/16 = $1053 Annual holding cost = (16/2)*0.22*600 = 1053

c) D/Q = 240/16 = 15 orders per year

d) Q/D = 250*16/240 = 16.6 days

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