Question

Part a The Deli University Gift Shop purchases sweatshirts emblazoned with the school name and logo from a vendor in Spain Town at a cost of $2,000 each. The annual holding cost for a sweatshirt is calculated as 1.5% of the purchase cost. It costs the Gift Shop $500 to place a single order. The Gift Shop manager estimates that 900 sweatshirts will be sold during each month of the upcoming academic year

i) Determine the highest number of shirts that should be purchased by the Gift Shop in order to minimize stock administration costs.

ii) What is the number of orders to be placed each year?

iii)Compute the average annual ordering cost

iv) Compute the average annual carrying cost

v) Compute the total stock administration cost

Part b The maximum sale for the Gift Shop for any one week is 300 sweatshirts and minimum sales 150 sweatshirts. The vendor takes anywhere from 2 to 4 weeks to deliver the merchandise after the order is placed. Using the EOQ policy, determine the re-order level, minimum inventory level and maximum inventory level for the business.

Answer 1

Please find below table useful to compute desired results: -

End results would be as follows: -