or supply item ABC, Andrews Company has been ordering 125 units based on the rec
ID: 2984106 • Letter: O
Question
or supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly. A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information:
Annual Demand in Units: 250
Days Used per Year: 250
Lead time in days: 10
Ordering Cost: $10
Annual unit carrying cost: $20
Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying cost
Explanation / Answer
For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly. A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information:
Annual demand in units
250
Days used per year
250
Lead time, in days
10
Ordering costs
$100
Annual unit carrying costs
$20
Required:
Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs.
Answer:
EOQ = The square root of [(2 x 250 x $100) / $20] = 50
Average inventory = 50/2 = 25
Orders per year = 250/50 = 5
Average daily demand = 250/250 = 1 unit
Reorder point = 10/1 = 10 units
Annual ordering costs = 5 x $100 = $500
Annual carrying costs = 25 x $20 = $500
Annual demand in units
250
Days used per year
250
Lead time, in days
10
Ordering costs
$100
Annual unit carrying costs
$20
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