Question

# The Trektronics store begins each month with 1,100 phasers in stock. This stock is depleted each...

The Trektronics store begins each month with 1,100 phasers in stock. This stock is depleted each month and reordered. The carrying cost per phaser is \$35 per year and the fixed order cost is \$555. What is the total carrying cost? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Carrying costs \$ What is the restocking cost? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Restocking costs \$ Calculate the economic order quantity. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Economic order quantity Calculate the optimal number of orders per year. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Number of orders per year Should the company increase or decrease its order size?

1. Total carrying cost = Quantity / 2* Carrying cost per phaser

= 1100 /2 * 35

= \$19,250

2. Restocking cost = No of orders in a year * Ordering cost

= 12*555

= 6660

Total cost = 19250+6600 = 25910

3. Annual demand = 1100*12 = 13200

Carrying cost (C) = 35

ordering cost (O) = 555

EOQ = [( 2* annual demand * O )/ C] 1/2

= [( 2* 13200 *555 )/ 35] 1/2

= 647.02 phasers [ can be rounded off to 647 phasers]

No of orders year = 13200 / 647 = 20.4 orders [ can be rounded off to 21 orders]

Carrying cost as per EOQ = 647.02 * 35/ 2 = 11322.76

Ordering cost = 20.4 *555 = 11322

Total cost = 11322+11322.76 = 22644.72

The company must follow EOQ since the total of ordering and carrying cost are lower.

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