2. José runs a mail-order business for gym equipment from his house in Dorado. A
ID: 457098 • Letter: 2
Question
2. José runs a mail-order business for gym equipment from his house in Dorado. Annual demand for the PuertoFlexers (the best seller) is 25,000 in the US. Assume that the year has 360 days. He sells each product for $350, earning a markup of 20%, including shipping and handling to the US. The annual holding cost per unit is $5.50 and the cost to process an order is $25. It takes ten days to completely process an order. (Write down any assumption that you have to make.) 3. What are the EOQ and Total Cost of this situation? 4. How long does a cycle time last? 5. If José has space for 565 products, can all be stored in his facilities? 6. If José expect demand to rise by 15% next year, does he has to make any arrangements?
Explanation / Answer
3. What are the EOQ and Total Cost of this situation? 4. How long does a cycle time last?
5. If José has space for 565 products, can all be stored in his facilities? 6. If José expect demand to rise by 15% next year, does he has to make any arrangements?
which means at the time of placing the order, The maximum inventory that Jose need to keep is the EOQ , i.e. 477. He will placing an order every 7 days, when the inventory level is approx 213. having a space for 565, all qty can be stores in his facilities. If the demand rises by 15% next year, then the EOQ will become 511. So Still he will not need to make any arrangement for additional space.
Annual Demand (D) 25000 Number of Working days per year (n) 360 Demand per day 69 Lead Time (L) 10 Selling Price 350 Markup 20% Unit Cost Price (P) = 350*(1-20%) 280 Ordering Cost (O) 25 Annual Holding Cost (H) 5.50 Economic Order Qty (Q) 477 EOQ =(2*D*O/H) Average Inventory Level = Q/2 238 Number of Orders per year (N) 52 = D/Q Cycle Time (number of days between two orders) 7 days Cycle Time = n/N Inventory Holding Cost (HC) = H*Q/2 1311 Annual Ordering Cost (OC) = O*N 1311 Total Annual Inventory mgmt Cost (TC) 2622Related Questions
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