Question

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?

Answer 1

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.