The Trektronics store begins each week with 580 phasers in stock. This stock is
ID: 2744666 • Letter: T
Question
The Trektronics store begins each week with 580 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $53 per year and the fixed order cost is $102. What are the current total carrying costs? (Do not round intermediate calculations.) Carrying costs $ What are the current restocking costs? (Do not round intermediate calculations.) Restocking costs $ What is the economic order quantity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) EOQ $ Should Trektronics increase or decrease its order size? Increase Decrease How many orders per year will Tektronics place under the new policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Orders per year $
Explanation / Answer
1)What are the current total carrying costs?
The carrying costs = the average inventory times the cost of carrying an individual unit
Carrying costs = (580/2)($53) = $15,370
2)What are the current restocking costs?
The order costs = the number of orders times the cost of an order
Restocking costs = 52($102) = $5,304
3)What is the economic order quantity?
The economic order quantity ,
EOQ = 2AO/C
A =Annual consumption= Consumption per week x no of weeks per year
=580 x 52
=30,160 units
O= Order cost=$102
C= Carrying cost=$53
EOQ =2 x 30,160 x 102/53
=1,419,840 /53
= 6,152,640 /53
= 116,087.55
=340.72
4) Trektronics should increase or decrease its order size ?
Decrease
The firm’s policy is not satisfactory as the carrying costs and the order costs are different. The company should reduce the order size and e expand the order numbers.
5)How many orders per year will Tektronics place under the new policy
The number of orders per year will be the total units sold per year divided by the EOQ, so:
Orders per year= Annual consumption/ EOQ
=30,160/340.72
=88.52
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