This Question: 6 pts 129 of 36 (0 complete) This Test: 100 pts possit Question H
ID: 418547 • Letter: T
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This Question: 6 pts 129 of 36 (0 complete) This Test: 100 pts possit Question Help Thomas Kratzer is the purchasing manager for the headquarters of a large insurance company chain with a central inventory operation. Thomas's fastest-moving inventory item has a demand of 6,000 units per year. The cost of each unit is $102, and the inventory carrying cost is $9 per unit per year. The average ordering cost s $31 per order. It takes about 5 days for an order to arrive, and the demand for 1 week is 120 units. (This is a corporate operation, and there are 250 working days per year). a) What is the EO0?units (round your response to two decimal places) b) What is the average inventory if the EOQ is used? units (round your response to two decimal places) o) What is the optimal number of orders per year? orders (round your response to two decimal places). d) What is the optimal number of days in between any two orders?days (round your response to two decimal places). o) What ils the annual cost of ordering and holding inventory?per year (round your response to two decimal places). What is the total annual inventory cost, Including the cost of the 6,000 units?per year (round your response to two decimai places) Enter your answer in each of the answer boxes.Explanation / Answer
a)
Economic order quantity (EOQ) is the order quantity of inventory that facilitates to minimize the total cost of inventory management
Annual demand = 6,000 units
Cost of each unit = $102
Inventory carrying cost= $9 per unit per annum
Average ordering cost = $31 per order
Working days per year = 250 days
EOQ = ?2AS / C
A = Annual demand
S = Ordering cost per order
C = Annual carrying cost per unit per annum
EOQ = 203.31 units (?2 x 6,000 units x $31 / $9)
b)
Economic order quantity (EOQ) is the ideal order quantity a company should purchase for its inventory which in fact would help minimize variable inventory costs
Average inventory if EOQ is used = 101.66 units (203.31 units / 2)
c)
Optimal number of orders per year = 29.51 orders per year (6,000 units / 203.31 units)
d)
Optimal number of days in between any two order = 8.47 days (250 days / 29.51 orders)
e)
Annual cost of ordering = $914.81 (29.51 orders x $31)
Annual cost of holding inventory = $914.94 (101.66 units x $9)
f)
Total annual inventory cost = $613,829.75 (6,000 units x $102 + $914.81 + 914.94)
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