Question

Radio Stack sells a particular digital cameras for $500 each. Forecasts indicate the future demand for these cameras to be fairly constant at an average rate of 250 cameras per year. Radio Stack purchases the cameras from the manufacturer who charges a delivery fee of $25 per order. Radio Stack calculates their inventory holding cost based on a 20 percent annual interest rate

. a) Use the following pricing schedule to determine the size of the standing order. For quantities of 25 cameras or less, the camera manufacturer charges $350 per camera; for quantities between 26 and 50, the manufacturer charges $350 for the first 25 cameras and $315 for each additional camera purchased beyond 25; for quantities over 50, the manufacturer charges $350 for the first 25 cameras, $315 for the next 25 cameras, and $285 each for additional quantity over 50.

b) Now use the following pricing schedule to determine the size of the standing order. For quantities of 25 cameras or less, the firm charges $350 per camera; for quantities between 26 and 50, it charges $315 per camera; and it charges $285 per camera for quantities over 50.

c) If the replenishment lead time for cameras is six months (i.e. time for manufacturer to deliver an order of cameras to Radio Stack is 6 months), determine the reorder point in terms of Radio Stack’s inventory level of cameras. Find the reorder point using the order size determined in part b.

Answer 1