The Trektronics store begins each week with 500 phasers in stock. This stock is

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 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? Decrease Increase 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

Current total carrying cost = Carrying cost per unit x Average inventory = $ 45 x 500/2 = $ 11,250

Current restocking costs = $ 90 x 52 = $ 4,680

Economic order quantity = (2 x 500 x 52 x 90 / 45)1/2 = 322 units

As the inventory carrying cost is higher than restocking costs, Tektronics should decrease its order size.

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