Question

Michigan State Figurine Inc. (MSF) sells crystal figurines to Spartan fans. MSF buys the figurines from a manufacturer for $12 per unit. They send orders electronically to the manufacturer, costing $25 per order and they experience an average lead time of seven days for each order to arrive from the manufacturer. Their inventory carrying cost is 20 percent. The average daily demand for the figurines is four units per day. They are open for business 250 days a year. Answer the following questions:

a. How many units should the firm order each time? Assume there is no uncertainty at all about the demand or the lead time. (Do not round intermediate calculations. Round your answer to the nearest whole number.)

b. How many orders will they place in a year? (Use your rounded answer from Part a. Round your answer to 2 decimal places.)

c. What is the average inventory? (Use your rounded answer from Part a. Round your answer to 1 decimal place.)

d. What is the annual ordering cost? (Use your rounded answer from Part b. Round your answer to 2 decimal places.)

e. What is the annual inventory carrying cost? (Use your rounded answer from Part a. Round your answer to 2 decimal places.)

Answer 1

Given data:

cost per unit = $12

per order cost = $25

Holding cost is 20% i.e. 0.2*12 = $2.4

Daily demand = 4 units

Days in year are 250

Thus, Annual demand = 4*250 = 1000 units

1.) Order size,

To minimize the total ordering and holding cost, they should follow Economic order quantity

EOQ =

Here, D is annual demand,

S is per order cost and

H is inventory carrying cost

EOQ = =

EOQ = 144.33 or 145 units

Thus order size should be 145 units

2.) No. of orders = =

No. of orders = 6.89

Thus, no. of orders placed is 6.89

3.) Average Inventory =

Average inventory = =  72.5 units

Thus, average inventory is 72.5 units

4) Annual ordering cost = No. of orders * cost per order

Annual ordering cost = 6.89 * 25 = 172.25

Thus annual ordering cost is $172.25

5) Annual Inventory carrying cost = Avg inventory * per unit holding cost

Annual Inventory carrying cost =

Annual Inventory carrying cost = = 174

Thus annual inventory carrying cost is $174