(TCO 11) For supply item MT, Bluesky Company has been ordering 150 units based o
ID: 2361909 • Letter: #
Question
(TCO 11) For supply item MT, Bluesky Company has been ordering 150 units based on the recommendation of the salesperson who calls on the company monthly. The company has hireda new purchasing agent, who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information:
Annual demand in units
300
Days used per year
300
Lead time, in days
20
Ordering costs
$125
Annual unit carrying costs
$25
Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs.
Annual demand in units
300
Days used per year
300
Lead time, in days
20
Ordering costs
$125
Annual unit carrying costs
$25
Explanation / Answer
EOQ=(2 x300 x125/25)^0.50 = 54.77Units Average Inventory=54.77/2 = 27.39 units Orders Per Year=300/54.77 = 5.48 or 5 (Rounded off) Orders Per year Average Daily Demand=300/300 =1 unit Reorder Levels=1 x 20 = 20 units Annual Ordering Costs = 5.48 x 125 = $685 Annual Carrying Costs=27.39 x 25 = $684.75
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