Question

2) Suppose Stanley's Office Supply purchases 70,000 boxes of pens every year. Ordering costs are $133.95 per order and carrying costs are $0.75 per box. Moreover, management has determined that the EOQ is 5,000.40 boxes. Note: The ordering costs and EOQ differ from problem 1. The vendor now offers a quantity discount of $0.03 per box if the company buys pens in order sizes of 10,000 boxes. Determine the before-tax benefit or loss of accepting the quantity discount. (Assume the carrying cost remains at $0.75 per box whether or not the discount is taken.) Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

3) Use the data from problem 2 and a 365 day year. If the lead time for placing an order is 14 days, and Stanley's Office Supply holds a Safety Stock of 45 days Supply of Boxes of Pens, then at what inventory level in Boxes should an order be placed? Enter your answer rounded to two decimal places. For example, if your answer is 123.45% or 1.2345 then enter as 1.23 in the answer box.

Answer 1

2).

	Formula	EOQ	Proposed
Quantity required	Q	70,000	70,000
Order size (in units)	O	5,000.40	10,000
Ordering cost per order	OC	133.95	133.95
Carrying cost per unit	CC	0.75	0.75
Discount offered per unit	D	-	0.03
Purchase price per unit		70.71	70.68
Number of orders	N = Q/O	14.00	7.00
Calculations:
Ordering cost	OC1 = N*OC	1,875.15	937.65
Carrying cost	CC1 = (CC*O)/2	1,875.15	3,750.00
Total cost	C = OC1 + CC1	3,750.30	4,687.65
Extra cost	Cproposed - CEOQ		937.35
Discount	D*Q		2,100.00

Before-tax benefit of accepting the discount = Discount - Extra cost = 2,100 - 937.35 = 1,162.65

3).

Daily demand	DD = Q/365	191.78
Lead time (in days)	L	14
Safety stock (in days)	Sn	45.00
Safety stock (in units)	Su = (Sn*DD)	8,630.14
Reorder point	R = (DD*L) + Su	11,315.07
Order size (in units)	O	5,000.40
Inventory level	R/O	2.26

Inventory level when an order should be placed = 2.26