Question

Aulia Company sells shoes for kids at its store. These shoes cost Aulia RM 15 each pair. Customers want to buy the shoes at a rate of 240 pairs per week. The company operate 52 weeks per year. Aulia, the owner, estimates his ordering cost at RM 50. Annual holding costs are 20 % of the unit cost.

Compute all the following elements and shows the related calculation.

1. Optimal order quantity
2. Number of order
3. Holding cost
4. Ordering cost

Answer 1

Cost of the shoes = 15/pair

Weekly demand = 240 pairs

Work weeks/year = 52

Annual Demand, D = 52*240 = 12480

Ordering cost , S= 50

Annual holding cost, H = 20% or unit cost = 20%*15 = 3

i. Optimal order quantity, Q =(2DS/H) = (2*12480*50/3)= 644.98 rounded to 645

ii. Number of order = D/Q = 12480/645 = 19.348 rounded to 19.35

iii. Holding Cost = Average Inventory*H = (Q/2)*H = (645/2)*3 = 967.5

iv. Ordering Cost = Number of order*S = (D/Q)*S = 19.35*50 = 967.5