Question

The Trektronics store begins each month with 1,250 phasers in stock. This stock is depleted each month and reordered. The carrying cost per phaser is $38 per year and the fixed order cost is $570.

What is the total carrying cost? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Carrying costs $

What is the restocking cost? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Restocking costs $

Calculate the economic order quantity. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Economic order quantity

Calculate the optimal number of orders per year. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Number of orders per year

Should the company increase or decrease its order size?

Answer 1

Solution:

Total carrying cost = Average inventory+ Carrying cost per unit

(1,250/2)×$38 =$23,750

Total carrying cost = carrying cost+ fixed cost

=$23,750+$570=$24,320

Restocking cost(monthly order)

=$570×12 =$6840

Trektronics's carrying cost ($24,320) are high in comparison to their restocking cost($6,840), therefore Trektronics is carrying too much inventory and needs to reduce their inventory holdings.

EOQ :Economic Order Quantity (optimal inventory quantity )=2 T× F

Cc

Where T = 1,250

F =$570

Cc =$38

EOQ =(2×1250)×$570/$38 =37500

=√37500 = 193.64

=193 units

Now calculate the total cost At EOQ

Carrying Cost = (Q/2) × Cc

=(193.64/2) ×$38 =$3679.16

The restocking cost and fixed cost are incurred on every reorder of inventory. Fixed cost of 1250 units was$570.

Number of reorder in an year = T/EOQ

1,250/193.64 = 6.453 times

6.453 times in a month inventory is recorded.

=6.453×12 = 77.40 times

Fixed cost = $570 × 6.45 =$3676.5

Total cost = Carrying cost + Fixed cost

= $3679.16 +3676.5 =$7,355.66

However the optimal inventory policy for the company will be ordered 193.64 units and 77.40 times

Or 193 units , 77 times.

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