A flower shop uses 800 clay pots per month. The pots are purchased at $2 each. A

Question

A flower shop uses 800 clay pots per month. The pots are purchased at $2 each. Annual carrying costs are estimated at $.60 per pot per year and ordering costs are $20 per order. The manager has currently been using an order size of 1600 flower pots per order. Considering this, please answer the following questions :

- What is the number of orders per year if the manager uses the current order quantity of 1600?

- What is the number of orders per year if the manager uses the Economic Order Quantity?

- What is the maximum number of flower pots that are held in inventory in a given ordering cycle?

Explanation / Answer

a. Number of orders if the manager uses the current order quantity of 1600=sqrt[(2*1600*20)/0.60]

=326.598 or 327 orders

b. the number of orders per year if the manager uses the Economic Order Quantity=sqrt[(2*12*800*20)/0.60]

= 800

c. no. of flower pots=(2*12*800)/800=24

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