New England Charm, Inc. specializes in selling scented candles. The company has
ID: 2754995 • Letter: N
Question
New England Charm, Inc. specializes in selling scented candles. The company has established a policy of reordering inventory every 30 days. A recently employed MBA has considered New England's inventory problem from the EOQ model viewpoint. If the following constitute the relevant data, how does the current policy compare with the optimal policy?
Ordering cost = $10 per order
Carrying cost = 20% of purchase price
Purchase price = $10 per unit
Total sales for year = 1,000 units
Safety stock = 0
Please show work step by step. Thanks
Explanation / Answer
Economic ordering quantity:
= (2×Annual requirement×buying cost per order÷Carrying cost per unit)^(1÷2)
= (2×1,000×$10÷$2)^(1÷2)
= 100 units per order
Current order size:
= 1,000 units÷12
= 83 units
Order size has to be increased to 100 units per order.
Economic ordering quantity:
= (2×Annual requirement×buying cost per order÷Carrying cost per unit)^(1÷2)
= (2×1,000×$10÷$2)^(1÷2)
= 100 units per order
Current order size:
= 1,000 units÷12
= 83 units
Order size has to be increased to 100 units per order.
Economic ordering quantity:
= (2×Annual requirement×buying cost per order÷Carrying cost per unit)^(1÷2)
= (2×1,000×$10÷$2)^(1÷2)
= 100 units per order
Current order size:
= 1,000 units÷12
= 83 units
Order size has to be increased to 100 units per order.
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