Question

Global Manufacturing, Inc. currently begins each sales cycle with 294,900 units in stock. This stock is depleted at the end of each sales cycle and then reordered. The firm currently places 14 orders per year The carrying cost per unit is $2.009 per year and the fixed order cost is $13,850 per order. Assuming there is no shortage cost for this firm. The average cost of each unit of inventory is $58.17.

Beginning Inventory = 294,900 units

Ending Inventory = 0 Units

# Orders per year= 14 Orders

Carrying Cost/unit= $2.009 per year

Fixed Order Cost = $13,850 per order

Average Inventory Cost Per Unit = $58.17 per unit

Q* = square root (2T*F)/(CC)

a) What is the total carrying cost?

b) What is the restocking cost?

c) What is the total cost of current inventory policy? Answer for C is $462,427, this was confirmed by professor.

d) Calculate the economic order quantity?

f) What would the EOQ Inventory Balance (in dollars) be in 2019 if the firm switched to the EOQ Inventory Policy?

EOQ Inventory Balance = EOQ Units per order * Average inventory value per unit

Answer 1

A) Total Carring cost= Average stock in year*Carring cost per unit

294900/2*2.009= $296227.05

B) Restocking cost= No of order * Cost per each Order

14 orders*13850=$193900

C) Total Cost of current Inventory = Total Carring cost + Total restocking cost

296227.05+193900=490127

answer confirmed by Professor is calculated based on 12 order, assuming we have opening stock (not counted as order) and no order in last of year because we have nil inventory.

D) Economic order quantity= square root(2*Annual demand*cost per order/carring cost)

Square root of (294900*14*13850/2.009)

=168708 units per order

F)EOQ Inventory Balance = EOQ Units per order * Average inventory value per unit

EOQ inventory balance = 168708 units*58.17= $ 9813758