The Western Jeans Company purchases denim from Cumberland Textile Mills. The Wes

Question

The Western Jeans Company purchases denim from Cumberland Textile Mills. The Western Jeans

Company uses 35,000 yards of denim per year to make jeans. The cost of ordering denim from the textile company is $500 per order. It costs Western $0.35 per yard annually to hold a yard of denim in inventory. Determine:
A.The optimal number of yards of denim the Western Jeans Company should order.
B.The minimum total annual inventory cost

C.The optimal number of orders per year and the optimal time between orders

Explanation / Answer

Here we have the following information:

Ordering cost per order (O) = $500

Holding cost per unit per annum (H)= $0.35

Annual Requirement (A) = 35000 yards

a)

Here we need to calculate the optimal number of yards of denim that should be ordered with a single order. At optimal ordering quantity, total cost f handling inventory is minimum. Following is the formula of optimal or Economic ordering quantity (EOQ)

EOQ = SQRT(2

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