In: Operations Management

Ergonomics Inc. sells ergonomically designed office chairs. The company has the following information: Average demand = 30 units per day Average lead time = 37 days Item unit cost = $57 for orders of less than 270 units Item unit cost = $56 for orders of 270 units or more Ordering cost = $32 Inventory carrying cost = 20% The business year is 250 days Assume there is no uncertainty at all about the demand or the lead time.

a. Calculate EOQ if unit cost is $57 and $56. (Note: These EOQs do not need to be feasible in their price range.)

**b.** Calculate annual ordering costs for each
alternative?

**c.** Calculate annual inventory carrying costs
for each alternative?

**d.** Calculate annual product costs for each
alternative?

e. What will be the total costs for each alternative?
**(Round your answers to 2 decimal places.)**

**f.** Based on your analysis, how many chairs
should they order at a time?

**g.** How much the firm can save annually by using
the order quantity in Part f. instead of the first EOQ shown in
Part a?

Average demand per day = 30 units

The business year = 250 days

Annual Demand, D = 250 *30 = 7500 units

Average lead time = 37 days

Unit cost = $57 for orders of less than 270 units

unit cost = $56 for orders of 270 units or more

Ordering cost, S = $32

Inventory carrying cost = 20%

For orders of less than 270 units, Holding Cost per unit, H = 20% *57

For orders of 270 units or more, Holding Cost per unit, H = 20% *56

**@56 unit price, EOQ = 207.0197**

**@57 unit priceEOQ = 205.1956**

@56 | @57 | |

EOQ | 270.000 | 205.196 |

No.of Orders = 7500/EOQ | 27.77778 | 36.55048 |

Order Cost = No.of orders*32 | 888.8889 | 1169.615 |

Purchase cost = 7500*unit price | 420000 | 427500 |

Annual Holding Cost = (EOQ/2)*H | 1512 | 1169.615 |

422400.9 | 429839.2 |

b)

Annual Ordering Cost @ 56 = $ 888.88

Annual Ordering Cost @ 57 = $ 1169.615

c)

Annual inventory carrying cost @ 56 = $ 1512

Annual inventory carrying cost @ 57 = $ 1169.615

d)

Annual product cost @ 56 = **420000**

Annual product cost @ 57 = **427500**

**e)**

Total costs @56 = 422400.9

Total costs @57 = 429839.2

f)

Ordering the chair at the discount price has less total cost. Hence 270 units should be ordered.

g)

@56 | @57 | @56 | ||

EOQ | 270.000 | 205.196 | 207.020 | Initial EOQ Quantity |

No.of Orders = 7500/EOQ | 27.77778 | 36.55048 | 36.22844 | |

Order Cost = No.of orders*32 | 888.8889 | 1169.615 | 1159.31 | |

Purchase cost = 7500*unit price | 420000 | 427500 | 420000 | |

Annual Holding Cost = (EOQ/2)*H | 1512 | 1169.615 | 1159.31 | |

422400.9 | 429839.2 | 422318.6 |

**Saved at discount by ordering 270 units =
429839.2-422400.9 = 7438.342**

The EOQ for 56 unit price is 207.02.

By ordering 270 units to avail discount, 429839.2-422318.6 = 82.26 is lost when compared with part a.

Ergonomics Inc. sells ergonomically designed office chairs. The
company has the following information:
Average demand = 30 units per day
Average lead time = 44 days
Item unit cost = $64 for orders of less than 340 units
Item unit cost = $62 for orders of 340 units or more
Ordering cost = $39
Inventory carrying cost = 25%
The business year is 250 days
Assume there is no uncertainty at all about the demand or the
lead time.
a....

Ergonomics Inc. sells ergonomically designed office chairs. The
company has the following information:
Average demand = 20 units per day
Average lead time = 30 days
Item unit cost = $50 for orders of less than 200 units
Item unit cost = $48 for orders of 200 units or more
Ordering cost = $25
Inventory carrying cost = 25%
The business year is 250 days
Assume there is no uncertainty at all about the demand or the
lead time.
a....

Ergonomics Inc. sells ergonomically designed office chairs. The
company has the following information:
Average demand = 35 units per day
Average lead time = 49 days
Item unit cost = $69 for orders of less than 390 units
Item unit cost = $65 for orders of 390 units or more
Ordering cost = $44
Inventory carrying cost = 20%
The business year is 250 days
Assume there is no uncertainty at all about the demand or the
lead time.
a....

Ergonomics Inc. sells ergonomically designed office chairs. The
company has the following information:
Average demand = 29 units per day
Average lead time = 30 days
Item unit cost = $56 for orders of less than 260 units
Item unit cost = $54 for orders of 260 units or more
Ordering cost = $31
Inventory carrying cost = 25%
The business year is 250 days.
Assume there is no uncertainty at all about the demand or the
lead time.
a....

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Average Demand = 15 units per day
Average lead time = 20 days
Item unit cost = $60 for orders of less than 200 units
Item unit cost = $58 for orders of more 200 units or more
Ordering costs = $30
Inventory carrying costs = 25%
The business year is 250 days
Based on the above information:
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