The Trektronics store begins each week with 420 phasers in stock. This stock is

Question

The Trektronics store begins each week with 420 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $37 per year and the fixed order cost is $78.

What is the economic order quantity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

The Trektronics store begins each week with 420 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $37 per year and the fixed order cost is $78.

Explanation / Answer

Annual Demand quantity=52*420=21840 (assume 52 weeks in a year with toal 52 order in a year)

current total carrying costs/year=carrying cost per phaser *21840/2 =37*21840/2=$404040

restocking cost/year=52*$78=$4056

Fixed cost/order=K=78

D=Annual Demand quantity=21840

h=Annual carrying cost/unit=$37 per year

economic order quantity=sqrt(2D*K/h)=sqrt(2*21840*78/37)=303.45~304 is the optimal order quantity. Thus Trektronics should decrease its order size to 304 phasers per week.

orders per year will Tektronics place under the new policy=21840/304 =72

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