(FSFS) operates a megastore featuring sports merchandise. It uses an EOQ decisio
ID: 2581104 • Letter: #
Question
(FSFS) operates a megastore featuring sports merchandise. It uses an EOQ decision model to make inventory decisions. It is now considering inventory decisions for its Los Angeles Galaxy soccer jerseys product line. This is a highly popular item. Data for 2013 are as follows:
Requirements
1.
Calculate the EOQ.
2.
Calculate the number of orders that will be placed each year.
3.
Calculate the reorder point
1.
Calculate the EOQ.
2.
Calculate the number of orders that will be placed each year.
3.
Calculate the reorder point
Expected annual demand for Galaxy jerseys Ordering cost per purchase order Carrying cost per year 14,000 $ 112 $ 10 per jersey Each jersey costs FS $60 and sells for $120. The $10 carrying cost per jersey per year consists of the required return on investment of $9.60 (16% x $60 purchase price) plus $0.40 in open 365 days a year.Explanation / Answer
Answer 1
EOQ = Square root (2* Expected annual demand * Odering Cost per purchase order ) / Carrying cost per year
= Square root (2 * 14,000 * 112) / $10 = 560
Answer 2
Number of orders that will be placed each year = Expected annual demand / EOQ
= 14,000 / 560 = 25
Answer 3
Galaxy jereys per day = Expected annual demand / FS open days = 14,000 / 365
Reoder point = Galaxy jereys per day * Purchase lead time in days
= (14,000 / 365) * 5 = 191.7808 or 192
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