The campus bookstore sells 100 school pins per month. To place an order costs $1
ID: 382414 • Letter: T
Question
The campus bookstore sells 100 school pins per month. To place an order costs $12, but she gets free shipping (sort of). The manager estimates the holding costs to be $0.15 per year.
a. What is the optimum order quantity?
EOQ _______
b. What is the Annual Holding Costs?
Holding Costs: ____________
c. How many orders per year?
Orders/yr ____________
d. If the bookstore is open 250 days a year and it takes 5 days from the time of order to delivery AND the store does not require any safety stock, what is the Reorder Point?
ROP: __________
e. The store buys the pins for $2. What is the annual cost of inventory for the pins?
Annual Cost of inventory: _________
Explanation / Answer
Monthly demand = 100 pins
Annual demand (D) = 100 x 12 months = 1200 pins
Ordering cost (S) = $12
Holding cost (H) = $0.15
a) Economic order quantity (Q) = sqrt of (2DS / H)
= sqrt of [(2 x 1200 x 12) / 0.15]
= sqrt of 192000
= 438.18 or rounded to 438 pins
b) Annual holding cost = (Q /2)H = (438/2)0.15 = $32.85
C) Number of orders per year = D /Q = 1200/438 = 2.74 or rounded to 3 orders
d) Number of days in a year = 250 days
Daily demand = Annual demand / number of days in a year
= 1200 / 250
= 4.8 pins
Lead time = 5 days
Reorder point = Daily demand x Lead time
= 4.8 x 5
= 24 pins
e) If the price = $2
Annual cost of inventory = price x D = $2x1200 = $2400
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