KU Inc. operates a store featuring school merchandise. It uses an EOQ decision m

Question

KU Inc. operates a store featuring school merchandise. It uses an EOQ decision model to make inventory decisions. It is currently considering inventory decisions for a special jacket line. Data for 2013 are: Expected annual demand for jackets: 20,000 Ordering cost per purchase order: $400 Carrying cost per year: $10 per jersey Each jersey costs KU Inc. $60 and sells for $110. The purchasing lead time is 10 days and the Store is open 300 days a year. Required: Calculate EOQ Calculate the number of orders that will be placed each year Calculate the reorder point

Explanation / Answer

D = 20,000 per annum

Ordering cost, Co = $400 per order

Carrying cost, Ch = $10 per year

Lead time, L = 10 days

Cost of a jersey = $60

Price = $110

1. EOQ = sqrt( 2*Co*D/Ch ) = sqrt(2*400*20000/10) = 1264.91 = 1265 (approx.)

2. Number of orders = D/EOQ = 20,000/1265 = 15.8103 = 16 (approx.)

3. Reorder point = daily demand* lead time = (20000/300)*10 = 666.67

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