Question

The Trektronics store begins each week with 560 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $51 per year and the fixed order cost is $99.

a.	What are the current carrying costs? (Do not round intermediate calculations.)
b.	What are the order costs? (Do not round intermediate calculations.)
c.	Calculate the economic order quantity. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

e.	How many orders per year will Tektronics place under the new policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

A)

Current Carrying Cost = Average Stock * Carrying Cost per Phaser per annum

= (560+0)/2 * $51

= $ 14,280

B)

Order Cost = Number of Orders in a year * Cost per Order

= Each week order is placed thus 52 Weeks equals 52 Orders * $99

= $ 5,148  

C)

Economic Order Quantity = Square root of ( 2* Annual Demand * Cost per Oder /  Carrying Cost per Phaser pa)

= Square Root of [ 2* (560*52 weeks) * 99 /51 ]

= Square root of ( 5,765,760/ 51)

= 336.24 Units

D) No of Orders as per new policy (i.e at EOQ Level) = Yearly Demand / EOQ

= 560 per week * 52 weeks / 336.24 units

= 86.60 Orders