Whittler\'s Candy Company is a family owned candy company with the following inf

Question

Whittler's Candy Company is a family owned candy company with the following information: · Weekly demand for small candy boxes = 90 boxes · Cost to place one purchase order with the box supplier = $19.80 · Cost to hold one box for one year in inventory = $2.45 · Lead time = 2 weeks · Weeks in a year = 52 weeks Help Whittler's determine the following: 1. What is the order decision rule - how many boxes should be ordered and at what inventory level? 2. What are the total annual costs of holding invenotry? 3. How much can the EOQ model save if there current order level is 360 boxes?

Explanation / Answer

Annual Demand (90 units/week *52 weeks) 4680 Ordering Cost $    19.80 Holding Cost - $1 per week $       2.45 a. EOQ = 2AO / H where A = Annual Demand O = Ordering Cost per order H = Holding Cost per unit per annum EOQ = 2AO / H = (2 * 4680 * 19.80) / 2.45 = 275.0347 units or, 275 units Lead Time - 2 weeks Hence Reorder Point = Lead time * weekly demand = 2 * 90 = 180 units Hence, 275 units should be ordered when inventory level is 180 units Total Holding Cost (Average Inventory * Holding Cost per unit = EOQ/2 * $2.45) (A) $336.88 Total Ordering Cost (No of orders * Ordering Cost = Annual Demand/EOQ * $8) (B) $336.96 Total Annual Cost of Managing this item (A+B) $673.84 Inventory Order Size (A) 275 360 No of orders (Annual Demand/Order Quantity per order = 4680 / A) (B) 17 13 Ordering Cost (No orders * $ 19.80 = B *$19.80) ( C) $336.96 $257.40 Carrying Cost per unit (D) $2.45 $2.45 Carrying Cost (Order Size / 2 * Carrying Cost per unit per annum = A/2 * D) ( E) $336.88 $441.00 Total Cost (C+E) $673.84 $698.40 EOQ can save $ 698.40 - 673.84 = $24.57

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