Question

3) SportsMart sells 500,000 baseballs annually. The baseballs cost SportsMart $24 per dozen ($2.00 each). Annual inventory carrying costs are 25% of inventory value and the cost of placing and receiving an order are $78. Determine the:

A) Economic Order Quantity
B) Total annual inventory costs of this policy
C) Optimal ordering frequency

4) Nike sells 1,000,000 basketballs annually. The baseballs cost Nike $180 per dozen ($15.00 each). Annual inventory carrying costs are 20% of inventory value and the cost of placing and receiving an order are $150. Determine the:

A) Economic Order Quantity
B) Total annual inventory costs of this policy
C) Optimal ordering frequency

Answer 1

Answer 3

(a)      
Annual demand (A)=   500000  
fixed ordering costs=   78  
carrying Cost (c)= $2*25%=   0.5  
      
Economic order quantity formula:      
EOQ =    √((2*A*o)/C)  
√(2*500000*78/0.5)      
      
12,490      
So EOQ is 12490 basketball      
      
(b) Annual Inventory cost = (Annual demand * cost per unit)+ (EOQ/2)* Inventory Carrying cost      
(500000*2)+((12490/2)*0.5)      
1003122.5      
So Total Inventory cost of this policy is   $1,003,122.50  
(d) Optimal order Frequency = Annual demand / optimal order quantity      
500000/12490      
40   orders  
      
So Optimal ordering frequency is 40 orders      
      

4.

(a)  
Annual demand (A)=   1000000
fixed ordering costs=   150
carrying Cost (c)= $15*20%=   3
  
Economic order quantity formula:  
EOQ =    √((2*A*o)/C)
√(2*1000000*150/3)  
  
10,000  
So EOQ is 10000 basketball  
  
(b) Annual Inventory cost = (Annual demand * cost per unit)+ (EOQ/2)* Inventory Carrying cost  
(1000000*15)+((10000/2)*3)  
15015000  
So Total Inventory cost of this policy is   $15,015,000.00
(d) Optimal order Frequency = Annual demand / optimal order quantity  
1000000/10000  
100   orders
  
So Optimal ordering frequency is 100 orders  

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