Ergonomics Inc. sells ergonomically designed office chairs. The company has the

Question

Ergonomics Inc. sells ergonomically designed office chairs. The company has the following information: average demand= 20 units per day average lead time= 30 days Item unit cost= $40 for orders of less than 200 units Item unit cost= $48 for orders of 200 units or more Ordering cost= $25 Inventory carrying cost= 25% The business year is 250 days How many chairs should the firm order each time? Assume there is no uncertainty at all about the demand or the lead time/ There are many associated questions, such as what will the firm's average inventory be under each alternative? What will be the breakdown of costs for each alternative?

Explanation / Answer

Hence Option one of EOQ is better:

ROP = 30* d= 30*20 = 600 units

Option 1 Daily demand 20 D Annual Demand 5000 Units K Ordering cost 25 $ h Holding cost/unit 10.000 $ P Cost per unit 40 $ W Working days 250 days Q Economic lot size 158.113883 Units Optimal Prod quantity Sqtr((2*Annual Demand*order cost)/Annual inventory carrying cost) (sqrt(2*KD/h) Avg S Avg Stock (Q/2) 79.0569415 79 Avg Stock N Optimal no of orders 31.6227766 (Demand/EOQ) 32 No of Orders DBO Days between order (Days/N) 7.90569415 7.91 Days Cycle time TC Total cost ((KD/Q)+(hQ/2)) 1581.14 $ Total cost OC Ordering cost (KD/Q) 790.57 $ HC Holding cost (hQ/2)) 790.57 $ PC Production cost (P*D) 200000.00 $ GTC Grand total 201581.14 $

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