An office supply store open 5 days a week must determine the best invetory polic
ID: 3110307 • Letter: A
Question
An office supply store open 5 days a week must determine the best invetory policy for boxes of copier paper. Weekly demand is nearly constant at 250 boxes and when orders are placed, then entire shipment arrives at once. The cost per box is $22 and the inventory holding cost is 30%. Orders are placed at a cost of $40 each, including preparation time and communication charges, and the lead time is 2 days.
1. Find the optimal order quantity.
2.How often should an order be placed?
3. How many orders will be placed in a year?
4. What is the total annual cost?
An office supply store open 5 days a week must determine the best inventory policy for boxes of copier paper. Weekly demand is nearly constant at 250 boxes and when orders are placed, then entire shipment arrives at once. The cost per box is $22 and the inventory holding cost is 30%. Orders are placed at a cost of $40 each, including preparation time and communication charges, and the lead time is 2 days Find the optimal order quantity How often should an order be placed? How many orders will be placed in a year? What is the total annual cost?Explanation / Answer
Weekly Demand = 250
Annual Demand = 52 * 250 = 13,000
Ordering Cost = $ 40
Holding Cost = 0.3
Cost Per Box = $ 22
Optimal Order Quantity = Sqrt ((2 * Annual Demand * Ordering Cost) / (Holding Cost * Cost per Box)
a)
OOQ = Sqrt(( 2 * 13,000 * 40) / (0.3 * 22)) = 396.96 = 397 boxes
b)
Time between order = Number of working Days / Number of Order = (5 * 52) / 33 = 7.88 days = 8 days
c)
Number Of Order = Annual Demand / EOQ = 13000 / 397 = 32.75 = 33 times
d)
Total Annual Cost = (Cost Per Box * Annual Demand) + ((Annual Demand / OOQ) * Ordering cost) + (( OOQ/2) * (Holding rate * Cost per box) = (22 * 13,000) + ((13,000/397)*40) + ((397/2)*(0.3*22)) = 288619.92 = 288620