Question

The Trektronics store begins each month with 775 phasers in stock. This stock is depleted each month and reordered. The carrying cost per phaser is $23 per year and the fixed order cost is $495.

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?

(Click to select)IncreaseDecrease

Answer 1

Monthly demand, M = 775 units, Carrying cost per phaser per year, C = $ 23, Fixed order cost = F = $ 495

Annual demand = D = 12 x M = 12 x 775 = 9,300 units

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 = 1/2 x M x C = 1/2 x 775 x 23 = $  8,913

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

Restocking costs = Cost per order x nos. of order per year = F x 12 = 495 x 12 = $  5,940

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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

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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 = D / EOQ = 9,300 /  632.70 = 14.70

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Should the company increase or decrease its order size?

Since EOQ is lower than the current order lot of 775 units, hence the company should Decrease its order size.