A store faces demand for one of its popular products at a constant rate of 3,000

Question

A store faces demand for one of its popular products at a constant rate of 3,000 units per year. It costs the store $50 to process an order to replenish stock and $10 per unit per year to carry the item in inventory. A shipment from the supplier is typically received 15 working days after an order is placed. The store buys the product for $60 per unit and sells it for $120 per unit. At the moment the store uses an order quantity of 250 units. Assume EOQ model assumptions are satisfied and 300 days a year. If there are two blank boxes in any question, then you must put one of the following words in the second box: units, dollars, days, year, orders per year, dollars per year, units per order Answer the following questions (you should not use any commas in your answer) Use at least 4 decimals in your calculation and answers. You must solve questions [1] through [6l assuming the store uses the current order quantity Questions [8] through [10] must be solved using the optimal order quantity. [1] To fulfill the demand, the store must place orders per year. 2] The average inventory level 3] The length of an inventory cycle is 4] The annual ordering cost is 5] The annual holding cost is (6] The time between any two orders is days. 171 The annual purchase cost is

Explanation / Answer

Therefore length of an inventory cycle = Order quantity / Daily demand = 250 /10 = 25 days

Therefore , Optimal order quantity = Square root ( 2 x 50 x 3000/ 10) = 173.20

= Annual unit holding cost x Average inventory

= Annual unit holding cost x Optimum order quantity / 2

= $10 x 173.20 / 2

= $8660

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