Italian car manufacturer Avanti will soon start exporting its luxury cars to the
ID: 2577582 • Letter: I
Question
Italian car manufacturer Avanti will soon start exporting its luxury cars to the U.S. It expects to sell there 48,000 models annually. Cars will be brought to the U.S. by ship, with a cost of $ 12,000 per trip. Once in the U.S., cars will be stored, which charge $500 per month for each car stored there. How many ship trips should the company use per year? (Hint: First calculate the number of cars to be sold per month and then proceed in a manner similar to the EOQ Practice Problem) Round off your answer to the nearest whole number. For example, if your answer is 132.37, you should answer 132.
Explanation / Answer
Annual Demand = 48000
Ships to be sold per month = 48000 / 12 = 4000
Ordering Cost per trip, O = $12000
Carrying Cost per car per month, C = $500
EOQ = [2 * Monthly demand * O / C]1/2
= [2 * 4000 * 12000 / 500]1/2
= 438.178
Number of ships trips per year = Annual Demand / EOQ
= 48000 / 438.178
= 109.5445
Number of ships trips per year = 110
EOQ =
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