Dresses-R-us sells a line of upscale evening dresses in a boutique. The store ch

Question

Dresses-R-us sells a line of upscale evening dresses in a boutique. The store charges $200 per dress and sales average 20 units per week. Currently, they order 10-week supplies from the manufacturer and pay $100 per dress. Lead-time is 2 weeks. The store estimates the administrative cost of placing each order to be $200. Adding the cost of capital and related costs the store manager believes that each dollar’s worth of idle inventory cost $0.30 per year. a. Compute the total annual cost of ordering and carrying inventory. b. If they wish to minimize annual cost, when and how much should the store order in each batch? (assume that the store will order enough units to cover demand for some number of weeks – n, so the question is to find the optimal value of the integer n) c. Find the number of inventory turns per year given the old and the new policy.

The supplier offers Dresses-R-us a volume based discount. The supplier will drop the price to $95 per dress, but for only order sizes above 250. The store is also considering an alternate supplier that has an electronic ordering system. Because of the nature of the software, ordering from this supplier drops the administrative cost to $100 per order and the store can select any order size up to 200 units per order. Which deal should the store accept? (Assume they must accept one of these deals.)

Explanation / Answer

1. Economic order quantity = [ 2x demand x ordering cost / holding cost per annum per unit]1/2

= [ 2 x 54 x20 x200/100x0.3]1/2 = 120

Number of orders = 1080/12 =9

cost of ordering = 9x200=1800

Inventory cost = 30x(120/2 + safety stock)= 1800 + 30x40 = 3000

Reorder point = demandx lead time = 20x 2 =40

Reorder quantity = 120

order sufficient to serve number of weeks = 120/20 =6 weeks

3.

For orders above 250, the min no, of orders = 1080/250 = 5

The order size 270 will give the company to take benefit of this policy

With this policy, the number of orders = 1080/270=4

Ordering cost = 200x 4 =800

Dress price saved = 1080x5 = 54000

Policy 2 - No. of orders = 1080/200 = 6 ( min)

with 6 orrders and quantity of 180 per order

Order cost = 6x100 =600

Clearly policy i which enables company to save money on dress price is better policy.

Inventory turns per year = 9

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.