Question

In: Operations Management

Suppose that sales for a shirt are 900 units per month. It costs $60 to generate...

Suppose that sales for a shirt are 900 units per month. It costs $60 to generate an order. The item to be ordered has a unit cost of $14 and the inventory holding ratio is 8%. Find the answers to the following questions.

1. Calculate the optimal lot size to purchase

2. How frequently should an order be placed throughout the year?

3. Calculate the annual order cost.

4. Calculate the annual carrying cost

5. Find the total cost.

Solutions

Expert Solution

1. Optimal Lot size (EOQ) = 1076 units

2. No. of Orders = 10

3. Annual Order cost = $ 600

4. Annual carrying cost = $ 602

5. total cost = $ 1202

D (Annual demand = 900 x 12) 10800
S (ordering cost) 60
C (Unit cost) 14
I (Inventory holding ratio) 8%
H (Holding cost = C x I) 1.12
Q (EOQ) = squareroot (2SD/H) 1076
N (No. of orders = D/Q) 10
OC (Ordering cost = N x S) 600
AI (Average inventory = Q/2) 538
IC (Inventory carrying cost= AI xH) 602
Total cost = OC + IC 1202

keosha answered 2 years ago
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