Ergonomics Inc. sells ergonomically designed office chairs. The company has the
ID: 362434 • Letter: E
Question
Ergonomics Inc. sells ergonomically designed office chairs. The company has the following information Average demand = 22 units per day Average lead time 31 days item unit cost = $51 for orders of less than 210 units nem unit cost = $47 for orders of 210 units or more Ordering cost- $26 Inventory carrying cost = 20% The business year is 250 days Assume there is no uncertainty at all about the demand or the lead time. a. Calculate EOQ if unit cost is $51 and $47. (Note: These EOQs do not need to be feasible in their price range.)(Round up your answers to the next whole number.) Unit cost at $51 units Unit cost at $47 units b. Calculate annual ordering costs for each alternative? (Round your answers to 2 decimal places.) Unit cost at $51 Unit cost at $47 c. Calculate annual inventory carrying costs for each alternative? (Round your answers to 2 decimal places) Unit cost at $51 Unit cost at $47Explanation / Answer
a)
EOQ, if unit cost is $ 51 = (2*22*250*26/(51*20%)) = 168 (rounded up)
EOQ, if unit cost is $ 47 = (2*22*250*26/(47*20%)) = 175 (rounded up)
b)
Annual ordering cost, if unit cost is $ 51 = (22*250/168)*26 = 851.19
Annual ordering cost, if unit cost is $ 47 = (22*250/210)*26 = 680.95
c)
Annual inventory carrying cost, if unit cost is $ 51 = (168/2)*51*0.2 = 856.80
Annual inventory carrying cost, if unit cost is $ 47 = (210/2)*47*0.2 = 987.00
d)
Annual production cost, if unit cost is $ 51 = 51*22*250 = $ 280,500
Annual production cost, if unit cost is $ 47 = 47*22*250 = $ 258,500
e)
Total cost, if unit cost is $ 51 = 851.19+856.8+280500 = $ 282,208.00
Total cost, if unit cost is $ 47 = 680.95+987.00+258500 = $ 260,167.95
f) Total cost of second option (Q=210 at price $ 47) is lower.
Therefore, order quantity = 210 chairs
g) Annual saved = 282208 - 260168 = $ 22,040
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