Question

Global Manufacturing, Inc. currently begins each sales cycle with 168,758 units in stock. This stock is depleted at the end of each sales cycle and then reordered. The firm currently places 4 orders per year The carrying cost per unit is $0.611 per year and the fixed order cost is $8,245 per order.  Assuming there is no shortage cost for this firm.  The average cost of each unit of inventory is $92.58.

DATA INPUT

Beginning inventory =

168,758

units

Ending inventory =

0

units

# Orders per year =

4

orders

Carrying cost / unit =

$0.611

per year

Fixed order cost =

$8,245

per order

Average Inventory cost per unit =

$92.58

per unit

(a) What is the total carrying cost? (Round to the nearest whole dollar. (e.g., 1,234))

$

(b)  What is the restocking cost? (Round to the nearest whole dollar. (e.g., 1,234))

$

(c)  What is the total cost of current inventory policy? (Round to the nearest whole dollar. (e.g., 1,234))

$

(d) Calculate the economic order quantity.  (Round your answer to the nearest whole number of units. (e.g., 1,234))

0

(e) Calculate the number of orders per year that would be required if the EOQ Inventory Policy were implemented.  (Round your answer to 2 decimal places. (e.g., 32.16))

(f) What would the EOQ Inventory Balance (in dollars) be in 2019 if the firm switched to the EOQ Inventory Policy? (Do not include the dollar sign ($). Round to the nearest whole dollar. (e.g., 1,234)

$

Answer 1

Total requirement in a year

= 168,758 * 4

= 675,032 units

a) Total carrying cost

= 168,758 * $0.611

= $103,111.138

b) Re-stocking cost = ordering cost + total carrying cos

t = $8,245+ $103,111.138

= $111,356

c) Total cost of Current inventory policy

= inventory cost + ordering cost + carrying cost

= 675,032 * $92.58+ $8,245* 4 + 168,758 * $0.611

= $62,630,553

d) Economic Ordering Quantity

= SqRt [ (2 * 675,032 * 8,245) / $0.611 ]

= 134,974 units

e) Number of Orders per year = total requirement / EOQ

= 168,758 / 134,974

= 1.25

f) Total cost of Current inventory policy under EOQ policy = inventory cost + ordering cost + carrying cost

= 675,032 * 92.58+ 8,245* 1.25+ 134,974 * 0.611

= 62,630,553

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