Company C has the following weekly discrete demand forecast: Wesak 1????6.1 8 9

Question

Company C has the following weekly discrete demand forecast: Wesak 1????6.1 8 9 10 11 Each unit costs $250, it costs S 185 to place an order, holding cost is 2% of unit cost per week and the company operates 52 weeks a year. Design a reasonable ordering policy for Company C. How much does is the variable cost per year? In a given period, demand for an item is equally likely to be any value between 100 and 199 units. Each unit costs $75 and is sold for $100 each. Any unsold stock at the end of the period can be sold for S25 a unit. What is the optimal order quantity for the period?

Explanation / Answer

Total annual demand, D = Sum of weekly discreet demand * 52 = 107 *52 = 5564

Ordering cost , S = $185

H = 2% of Unit cost per week = 2% * 250 * 52 per year = $ 260 per year

EOQ = Sqrt (2DS/H) =Sqrt( 2*5564*185 / 260) = 89 units

Number of orders required = 5564/89 = 62.5 or 63

Variable cost per year = Number of orders * Ordering cost = 63*185 = 11655

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