Q3 Herman corporation istrying to improve its inventory control system and has i

Question

Q3 Herman corporation istrying to improve its inventory control system and has installed anonline computer at its retail stores. Human anticipates sales of$126,000 units per year, an ordering cost of $4 per order, andcarrying costs of $1,008 per unit. Herman maintains safety stock of500 units

a)      What is the economic orderingquantity?

b)      How many orders will be placedduring the year?

c)       What will be the averageinventory be?

d)      What is the total cost ofinventory expected to be?

Explanation / Answer

where D = annual demand quantity of the product S = fixed cost per order (not per unit, in addition to unitcost) H = annual holding cost per unit
1. So EOQ = SQRT(2*126000*4/1008) = 31.62 units. ie 32units 2. No of orders placed in year = Annual Qty / EOQ = 126000/32= 3937.5 ie 3938 orders 3. Avge Inventory will be EOQ/2 = 32/2 = 16 units 4. Total cost = Cost pu * Annual Qty + Cost per Order *No of Orders during year + Carrying cost pu * AvgeInventory However Cost pu is not given. Hence I am not able to calculateTC. Pl chk ur data & see if you can put the values in TC eqn toget the value.

S = fixed cost per order (not per unit, in addition to unitcost) H = annual holding cost per unit
1. So EOQ = SQRT(2*126000*4/1008) = 31.62 units. ie 32units 2. No of orders placed in year = Annual Qty / EOQ = 126000/32= 3937.5 ie 3938 orders 3. Avge Inventory will be EOQ/2 = 32/2 = 16 units 4. Total cost = Cost pu * Annual Qty + Cost per Order *No of Orders during year + Carrying cost pu * AvgeInventory However Cost pu is not given. Hence I am not able to calculateTC. Pl chk ur data & see if you can put the values in TC eqn toget the value.

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