Question

The Trektronics store begins each month with 925 phasers in stock. This stock is depleted each month and reordered. The carrying cost per phaser is $22 per year and the fixed order cost is $490.
a.	What is the total carrying cost? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
b.	What is the restocking cost? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
c.	Calculate the economic order quantity. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
d.	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.)

Answer 1

Solution =

a) Carrying cost = Current average inventory x Carrying cost per unit

Therefore , CC = $22 * 925 /2 = $10,175

b) Restocking cost =
= Number of orders per year x Ordering cost per order
= 12 x 490 = $5,880

c) Economic order quantity (EOQ)

EOQ=(2AO/C)^(1/2)

Here,

• A = Annual demand = 925 x 12 = 11,100 phasers
• O = Ordering cost = $490.00
• C = Carrying cost per unit = $22.00

Substituting the values in the formula, we get

EOQ =(2∗11,100∗490/22)^(1/2) = 703.17 = 704 orders

d) Optimal number of orders per year =

= Annual demand / EOQ = 11,100 / 704 = 15.76 = 16 orders