Discount-Lighting, as part of its new JIT program, has signed a long-term agreem

Question

Discount-Lighting, as part of its new JIT program, has signed a long-term agreement with its supplier in China and will now be ordering these halogen lamps online. Ordering costs will drop to $.50 per order, but Discount-Lighting has also reassessed its carrying costs and has raised these to $20 per lamp.

What is the new economic order quantity?

How many orders will now be placed?

What is the total annual cost of managing the inventory with this policy?

NB: Demand has not been given

so we can assume the demand is 2300lamps

.

Explanation / Answer

Plugging in the new values in the given formulas,

EOQ= sqrt (2*2000*.5/20) = 10

Orders to be placed= 2000/10 = 200

Total inventory cost,

= (2000/10)*.5 + (10/2)*20 = $

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