The Trektronics store begins each month with 600 phasers in stock. This stock is

Question

The Trektronics store begins each month with 600 phasers in stock. This stock is depleted each month and reordered. The carrying cost per phaser is $25 per year and the fixed order cost is $505. (Enter your answer as directed, but do not round intermediate calculations.)

The Trektronics store begins each month with 600 phasers in stock. This stock is depleted each month and reordered. The carrying cost per phaser is $25 per year and the fixed order cost is $505. (Enter your answer as directed, but do not round intermediate calculations.)

Explanation / Answer

Requirement 1: What is the total carrying cost?  

As per question: Average inventory*carrying cost = (0+600 units)/2 * $25 = $7500

As per EOQ = (0+539)/2 *$25 = $6738

  Carrying costs

$ 7500  or $6738

Requirement 2: What is the restocking cost?

As per question: The cost to order the stock again will be= ordering cost* no of orders= $505*12orders= $6060

As per EOQ = $505*13 = $6565

  Restocking costs

$6060 or $6565

Requirement 3:

Calculate the economic order quantity. Annual demand = 600*12 = 7200 units , Fixed order cost = $505

Carrying cost = $25 , EOQ = SQRT{(2*AD*Ordering cost)

  Economic order quantity

539 units  

Requirement 4:

Calculate the optimal number of orders per year. Annual demand / EOQ i.e. 7200/ 539 = 13.35 or 13 orders

  Number of orders per year

13  

Requirement 5:

Should the company increase or decrease its order size? The company should reduce its order size from 600 to 539 and increase number of orders from 12 to 13 per year

Decrease

Requirement 1: What is the total carrying cost?  

As per question: Average inventory*carrying cost = (0+600 units)/2 * $25 = $7500

As per EOQ = (0+539)/2 *$25 = $6738

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