For supply item ABC, Andrews Company has been ordering 125 units based on the re
ID: 2458383 • Letter: F
Question
For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly. A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information:
Annual demand in units
250
Days used per year
250
Lead time, in days
10
Ordering costs
$100
Annual unit carrying costs
$20
Required:
Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs.
EOQ:
Average inventory:
Orders per year:
Average daily demand:
Reorder point:
Annual ordering costs:
Annual carrying costs:
Explanation / Answer
A. EOQ = The square root of [(2 x 250 x $100) / $20] = 50
B. Average inventory = 50/2 = 25
C. Orders per year = 250/50 = 5
D Average daily demand = 250/250 = 1 unit
E. Reorder point = 10/1 = 10 units
F. Annual ordering costs = 5 x $100 = $500
G. Annual carrying costs = 25 x $20 = $500