The Trektronics store begins each week with 440 phasers in stock. This stock is

Question

The Trektronics store begins each week with 440 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $39 per year and the fixed order cost is $81.

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 440 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $39 per year and the fixed order cost is $81.

Explanation / Answer

1. Total carrying costs are the average inventory times the cost of carrying an individual unit so,

Carrying Costs = (440 phasers/2) *$39 = $8580

2. The order costs are the number of orders timesthe cost of an order so

Restocking cost = 52weeks *$81 = $4212

Assuming 52 weeks in a year.

3.EOQ =( (2T *F) /CC ) 1/2

= ( (2*52weeks*440 phaser) *$81) /$39 ) 1/2

= 308.29 phaser

4.The firms' policy is not optimal, since the carrying cost and the order cost are not equal. the company should decrease the order size and increase the no of orders.

5. The no of order per year total units sold per year divided by the EOQ so

No of orders per year = 52*440/ 308.29 = 74.22 orders

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