Suppose G-Mart typically sells 2,000 vacuum cleaners of a certain type per year

Question

Suppose G-Mart typically sells 2,000 vacuum cleaners of a certain type per year throughout its 6 local stores. The cost of each vaccum cleaner is $100. The ordering cost is $90 per order. The annual cost of holding a unit of the product is $44. What is the economic ordering quantity (rounded to the nearest integer)?

Further, it takes about 9 days to receive the merchandise from the time an order is sent to the manufacturer. G-Mart is open 360 days in a year after excluding certain holidays such as Labor Day, etc. What is the Re-order point at which an order should be placed to avoid disruption in the sales of the vaccum cleaner? [G-Mart does not currently believe in keeping Safety Stock].

Explanation / Answer

Economic order quantity:

?(2×annual demand×orderingcost)/holding cost

=?(2×2000units×$90)/$44=14 units

Re order point:

maximumconsumptionsmaxi day×maximum lead time

=(2000units/360days)×9days=50 units

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