You are the manager of a retail store that sells home theater systems among other products. The weekly demand for these systems is 600. The warehouse you rent to store the inventory of home security systems charges you $8 per month for holding each unit of inventory. You buy these systems from a very reliable supplier for $250 per piece and sell each for $500 per piece. Each time you place an order to buy the systems from your supplier, you pay $416 as a fixed fee per order regardless of the quantity. Once the order is placed, the supplier takes exactly 1 week to deliver the order regardless of the quantity ordered. Please use this information to answer the following questions: a) What is the optimal order quantity (i.e. Economic Order Quantity OR EOQ - i.e. what quantity should be ordered per order) that would minimize the total annual ordering and holding costs? b) What is the ideal reorder level assuming no safety stock (i.e. the inventory level at which you should place the next order to ensure that the replenishment arrives just as your on-hand inventory reaches zero)? c) What is this retail store's annual net profit (revenue minus all the costs specified here) if they use EOQ? d) The warehouse has doubled the rent starting next month. How will this (by itself) impact the EOQ (unchanged/increase/decrease) and the reorder level (unchanged/increase/decrease)? e) The supplier has recently switched to another shipper, and will now deliver the order in 1.5 weeks after the order is placed. How will this (by itself) impact the EOQ (unchanged/increase/decrease) and the reorder level (unchanged/increase/decrease)?
You are the manager of a retail store that sells home theater systems among other products. The weekly demand for these systems is 600. The warehouse you rent to store the inventory of home security systems charges you $8 per month for holding each unit of inventory. You buy these systems from a very reliable supplier for $250 per piece and sell each for $500 per piece. Each time you place an order to buy the systems from your supplier, you pay $416 as a fixed fee per order regardless of the quantity. Once the order is placed, the supplier takes exactly 1 week to deliver the order regardless of the quantity ordered. Please use this information to answer the following questions:
a) What is the optimal order quantity (i.e. Economic Order Quantity OR EOQ - i.e. what quantity should be ordered per order) that would minimize the total annual ordering and holding costs?
b) What is the ideal reorder level assuming no safety stock (i.e. the inventory level at which you should place the next order to ensure that the replenishment arrives just as your on-hand inventory reaches zero)?
c) What is this retail store's annual net profit (revenue minus all the costs specified here) if they use EOQ?
d) The warehouse has doubled the rent starting next month. How will this (by itself) impact the EOQ (unchanged/increase/decrease) and the reorder level (unchanged/increase/decrease)?
e) The supplier has recently switched to another shipper, and will now deliver the order in 1.5 weeks after the order is placed. How will this (by itself) impact the EOQ (unchanged/increase/decrease) and the reorder level (unchanged/increase/decrease)?
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