The Trektronics store begins each week with 500 phasers in stock. This stock is
ID: 2717684 • Letter: T
Question
The Trektronics store begins each week with 500 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $45 per year and the fixed order cost is $90.
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 500 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $45 per year and the fixed order cost is $90.
Explanation / Answer
(a) Computation of the current total carrying costs.We have,
Total carrying cost = Number of inventory x Carrying cost per unit per year
Total Carrying cost = 500 x 45.00 = $ 22,500.00
(b) Computation of the current restocking costs.We have,
Restocking costs = Number of order x per order cost
Restocking costs = 52 x $ 90.00 = $ 4,680.00
(c) Computation of the economic order quantity(EOQ).We have,
EOQ = [ 2 X Annual consumption x Buying cost per order / Cost of carrying one unit of inventory for one year]1/2
EOQ = [ 2 X (500 X 52) X 90 / 45 ]1/2 = 322 units
EOQ = 322 units
(d) Trektronics should decrease 178 units ( 500 - 322) its order size.
(e) Order per year = Annual Demand / EOQ
Order per year = 26,000 / 322 = 80.75
Hence, order per year is 80.75 place under the new policy.
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