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  1. avatar says

    Sir, what about this :
    A supermarket carries inventory of a certain for which of the following information is available :
    The demand is 500 units per day; the lead time is 4 days; the re-order quantity is 3,000 units. At what level of inventory should a replenishment order be placed in order to ensure that there are no stock-outs?
    (answer is 2000 units) i do not know how to work this one out.

  2. avatar says

    Sir, how do you work this out?
    A company purchases 5000 units per quarter at an even rate throughout the year. Each order placed with the supplier incurs a delivery charge of $20. The annual cost of holding one unit in inventory is $5. What is the minimum total of the inventory costs (order costs plus holding costs) per year?

    • Avatar of johnmoffat says

      First you use the formula on the formal sheet to get the Economic Order Quantity.
      D = 4 x 5000 = 20,000. Co = 20; Ch = 5.
      So the EOQ = 400 units.

      Then you calculate the annual cost:
      Delivery costs per annum = 20,000/400 x $20 = $1,000
      Holding cost = 200/2 x $5 = $1,000
      So total = $2,000.

  3. avatar says

    Sorry if this has been asked before, but when calculating the total cost p.a. at the EoQ, if the number of orders calculated returns a decimal answer (such as 11.25 orders in the question above), shouldn’t we round to 12 and then apply the order cost? Surely there’s no sense is calculating the cost of 11.25 orders…(unless we live amongst unicorns).. or is this like an average and in reality you’d make 10 orders of 160 and an 11th order of 200 units (or what ever other arrangement)

    • Avatar of johnmoffat says

      Obviously you cannot make 11.25 orders.

      However (and I do explain this in the lecture) we assume that it is a long term decision. In the first year you will place 12 orders, but there will be some inventory left at the end of the yea. So in the second year you will only need 11 orders, and so on.

      On average there will be 11.25 orders, and it is important for the costings not to round this.

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