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Can you please help me with the following two questions?
1.A company uses the Economic Order Quantity model to establish reorder quantities. The following information relates to the forthcoming period:
Order Costs= $25 per order
Holding Costs= 10% of purchase price
Annual demand= 220,000 units
Purchase price= $ 40 per unit
EOQ= 500 units
No safety inventory is held.What are the total annual costs of inventory that is, the total purchase cost plus total order cost plus total holding cost?
2.What is the reorder level in units that avoids inventory stock outs for the below Data?
Average daily usage 400 units
Maximum daily usage 520 units
Minimum daily usage 180 units
Lead time for replenishment of inventory 10 to 15 days
Reorder quantity 8,000 unitsYou must have answers in the same book in which you found the questions and in future you should ask about whatever in the answer you are not clear about, and not simply ask for an answer.
Also, you really must watch my free lectures – these are easy examples and the methods are covered in full in the lectures. The lectures are a complete free course for F2 and cover everything needed to be able to pass the exam well.
1. The total purchase cost = 220,000 x $40
The total order cost = 220,000/500 orders x $25
The total holding cost per year = 500/2 average inventory x (10% x $40).
Then add them all together 🙂2. The reorder level to avoid stock outs = maximum lead time (15 days) x maximum demand per day (520 units)
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