A company experiences annual demand of 3,000 units for an item that it purchases

Question

A company experiences annual demand of 3,000 units for an item that it purchases. The rate of demand per day is very stable, with very little variation from day to day. The item costs $40 when purchased in quantities less than 180 and $38 for 180 or more. Ordering costs are $30 and the carrying cost is 20 percent. What will be the total costs for each alternative? (Round your intermediate calculations and final answers to the nearest dollar amount.) How much should the company buy each time an order is placed? How much the company can save by placing the order? (Round your answer to the nearest dollar amount.) Michigan State Figurine Inc. (MSF) sells crystal figurines to Spartan fans. MSF buys the figurines from a manufacturer for $30 per unit. They send orders electronically to the manufacturer, costing $50 per order and they experience an average lead time of nine days for each order to arrive from the manufacturer. Their inventory carrying cost is 20 percent. The average daily demand for the figurines is four units per day. They are open for business 250 days a year. The supplier decides to offer a volume discount. They will sell the crystal figurines at $10 per unit for orders of 500 units or more. Answer the following questions: How many units should the firm order each time? Assume there is no uncertainty at all about the demand or the lead time. (Round your answer to the nearest whole number.) How many orders will they place in a year? What is the average inventory? (Round your answer to 1 decimal place.) What is the annual ordering cost? What is the annual inventory carrying cost? (Round your answer to 2 decimal places.) DAT, Inc., produces digital audiotapes to be used in the consumer audio division. DAT lacks sufficient personnel in its inventory supply section to closely control each item stocked, so it has asked you to determine an ABC classification. Here is a sample from the inventory records: Develop an ABC classification for these 10 items.

Explanation / Answer

10-

Annual Demand(D)=3000 (P1)Price for order size <180= 40 (P2) price for ordersize>180=38 Ordering Cost(O)=30 (C1)Carrying Cost at Order size <180=0.2*40=8 (C2) carrying cost at order size >180=0.2*38=7.6 a) EOQ=sqrt(2*3000*30/8) 150 hence TC @40= 3000*30/150+150*8/2+40*3000= 121200 TC @38=3000*30/180+180*7.6/2+38*3000= 115184 b) company should buy 180 units c) savings=121200-115184= 6016

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