Michigan State Figurine Inc. (MSF) sells crystal figurines to Spartan fans. MSF
ID: 449789 • Letter: M
Question
Michigan State Figurine Inc. (MSF) sells crystal figurines to Spartan fans. MSF buys the figurines from a manufacturer for $15 per unit. They send orders electronically to the manufacturer, costing $26 per order and they experience an average lead time of six 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. (Round your answer to the nearest whole number.)
Number of units ________
b.
How many orders will they place in a year? (Use your rounded answer from Part a. Round your answer to the nearest whole number.)
Number of orders per year _________
c.
What is the average inventory? (Use your rounded answer from Part a. Round your answer to the nearest whole number.)
Average inventory ________ units
d.
What is the annual ordering cost? (Use your rounded answer from Part b. Round your answer to the nearest dollar amount.)
Annual ordering cost $ __________
e.
What is the annual inventory carrying cost? (Do NOT use your ROUNDED average inventory level answer from Part c. Use the UNROUNDED average inventory level instead. Round your answer to the nearest dollar amount.)
Annual inventory carrying cost $ _________
Explanation / Answer
D = 4*250 = 1000
Co = $26
H = 20% = 0.2
C = $15
A)
EOQ = Sqrt((2 * D * Co)/(H*C)) = Sqrt((2 * 1000 * 26)/(0.2*15)) = 131.656 = 132 units
B)
Number of order = D / EOQ = 1000 / 132 = 7.58 = 8
C)
Average Inventory = EOQ / 2 = 132 / 2 = 66 units
D)
Annual Ordering Cost = Number of order * Ordering Cost = 8 * 26 = $ 208
Annual Inventory Cost = Average Inventory * H * C = (131.656/2) * 0.2 * 15 = $197.48