Question

1. IDM purchases one model of computer at a wholesale cost of $300 per unit and resells it to end consumers. The annual demand for the company’s product is 600,000 units. Ordering costs are $1,200 per order and carrying costs are $75 per computer, including $30 in the opportunity cost of holding inventory. It currently takes 2 weeks to supply an order to the store. assume that demand can vary during the 2-week purchase-order lead time. The following table shows the probability distribution of various demand levels: Total Demand for computers for 2 Weeks Probability of Demand (sums to 1) 21,670 0.05 22,450 0.2 23,078 0.5 24,820 0.2 25,820 0.05 If IDM runs out of stock, no safety stock is kept. It would have to rush order the computers at an additional cost of $3 per computer. How much could IDM spend in stock out cost?

2.

IDM purchases one model of computer at a wholesale cost of $300 per unit and resells it to end consumers. The annual demand for the company’s product is 600,000 units. Ordering costs are $1,200 per order and carrying costs are $75 per computer, including $30 in the opportunity cost of holding inventory. It currently takes 2 weeks to supply an order to the store.

(Please round all numbers to the next digit).

What is the annual relevant total cost of ordering and carrying inventory with the EOQ?

Answer 1