The Trektronics store begins each week with 540 phasers in stock. This stock is
ID: 2748672 • Letter: T
Question
The Trektronics store begins each week with 540 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $49 per year and the fixed order cost is $96.
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
Average Inventory = 540/2 = 270 phases
Carrying cost per phaser is $49 per year
Current Carrying Cost = 270 * 49 = $13,230
The company restocks every week at a fixed order cost of $96
Current restocking costs = 96 * 52 = $4,992
Economic Order Quantity = (2T * F / CC)1/2
where T = total needs = 540 * 52 = $28,080
F is fixed order cost
and CC is carrying cost
Economic Order Quantity = (2T * F / CC)1/2 = (2 * 28080 * 96 / 49)1/2 = 331.70 units
Since the carrying costs are large with respect to reorder costs, so the company is carrying too much inventory and should reduce its order size. Optimal order size = 331.70 units
Orders per year that Tektronics will place under the new policy = T/EOQ = 540 * 52 / 331.70 = 84.65
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