(Comprehensive EOQ calculations) Knutson Products Inc. is involved in the produc

Question

(Comprehensive EOQ calculations) Knutson Products Inc. is involved in the production of air-
plane parts and has the following inventory, carrying, and storage costs:
1. Orders must be placed in round lots of 100 units.
2. Annual unit usage is 250,000. (Assume a 50-week year in your calculations.)
3. The carrying cost is 10 percent of the purchase price.
4. The purchase price is $10 per unit.
5. The ordering cost is $100 per order.
6. The desired safety stock is 5,000 units. (This does not include delivery-time stock.)
7. The delivery time is 1 week.
Given the forgoing information:
a. Determine the optimal EOQ level.
b. How many orders will be placed annually?
c. What is the inventory order point? (That is, at what level of inventory should a new order
be placed?)

Explanation / Answer

EoQ=[(2x25000x100)/(10x.1)]= 2236.068

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