Concept explainers
a)
To determine: The total annual cost for different order sizes.
Introduction:
Total cost of inventory:
The total cost involved in ordering and carrying an inventory and the costs associated with the management and handling of associated activities.
b)
To calculate: The economic order quantity (EOQ) and to determine the implications of making error in calculating economic order quantity.
Introduction:
Economic order quantity (EOQ):
EOQ is the quantity of units a company must add to its inventory so as to minimize the total inventory costs. It will determine the ideal order quantity which will decrease the inventory management costs.
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Pearson eText Principles of Operations Management: Sustainability and Supply Chain Management -- Instant Access (Pearson+)
- The chapter presented various approaches for the control of inventory investment. Discuss three additional approaches not included that might involve supply chain managers.arrow_forward1. Calculate Economic Order Quantity (EOQ), number of orders, annual ordering costs, annual carrying costs and total inventory costs from the following: Annual consumption: 6000 units ; Cost of placing one Order: RO 60 Carrying cost per unit: RO 22. Find out the EOQ, Annual ordering cost and annual holding cost from the following information. The demand is 19500 units per year, holding cost is RO 4 per unit for a year and ordering cost is RO 25 order. 3. Find out the ordering cost from the following information, Annual demand is 240 units, holding cost RO 4 per unit for a year and EOQ is 60 units.arrow_forwardEpworth Co. predicts that it will use 360,000 gallons of material during the year. It anticipates that it will cost $72 to place each order. The annual carrying cost is $4 per gallon. a. Determine the most economical order quantity by using the EOQ formula. b. Determine the annual order and carrying costs at the EOQ point.arrow_forward
- The materials manager for a billiard ball maker must periodically place orders for resin, one of the raw materials used in producing billiard balls. She knows that manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04 per day to carry a kilogram of resin in inventory. She also knows that the order costs for resin are $100 per order, and that the lead time for delivery is four days. If the order size was 1,000 kilograms of resin, what would be the average inventory level?arrow_forward21. The expected annual usage of a particular material is 540,000 units, and the standard order size is 36,000 units The invoice cost of each unit is P900, and the ordering cost per order is P240. Assuming the company does not maintain safety stock. What is the ordering cost?arrow_forwardGiven the following information, compute the economic order quantity, annual holding cost, annual order cost, and annual total inventory cost. Annual requirements (R) = 50,000 units Order cost (S) = $150 per order Holding rate (k) = 15% Unit cost (C) = $100 per unitarrow_forward
- Abey Kuruvilla, of Parkside Plumbing, uses 1,250 of a certain spare part that costs $26 for each order, with an annual holding cost of $27. a) Calculate the total cost for order sizes of 25, 40, 50, 60, and 100 (round your responses to two decimal places). b) What is the economic order quantity? units (round your response to two decimal places).arrow_forwardDavid's Delicatessen flies in Hebrew National salamis regularly to satisfy a growing demand for the salamis in Silicon Valley. The owner, David Gold, estimates that the demand for the salamis is pretty steady at 175 per month. The salamis cost Gold $1.85 each. The fixed cost of calling his brother in New York and having the salamis flown in is $200. It takes three weeks to receive an order. Gold's accountant, Irving Wu, recommendsan annual cost of capital of 22 percent, a cost of shelf space of 3 percent of the value of the item, and a cost of 2 percent of the value for taxes and insurance. How many salamis should Gold have on hand when he phones his brother to send another shipment?arrow_forwardDavid’s Delicatessen flies in Hebrew National salamis regularly to satisfy a growing demand for the salamis in Silicon Valley. The owner, David Gold, estimates that the demand for the salamis is pretty steady at 175 per month. The salamis cost Gold $1.85 each. The fixed cost of calling his brother in New York and having the salamis flown in is $200. It takes three weeks to receive an order. Gold’s accountant, Irving Wu, recommends an annual cost of capital of 22 percent, a cost of shelf space of 3 percent of the value of the item, and a cost of 2 percent of the value for taxes and insurance.a. How many salamis should Gold have flown in and how often should he order them?b. How many salamis should Gold have on hand when he phones his brother to send another shipment?c. Suppose that the salamis sell for $3 each. Are these salamis a profitable item for Gold? If so, what annual profit can he expect to realize from this item? (Assume that he operates the system optimally.)d. If the salamis…arrow_forward
- Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The cost of placing an order is $30. The cost of holding one unit of inventory for one year is $15.00. Currently, Ottis places 160 orders of 4,000 plastic housing units per year. Compute the economic order quantity. Economic order quantity = 1600 Compute the ordering, carrying, and total costs for the EOQ. How much money does using the EOQ policy save the company over the policy of purchasing 4,000 plastic housing units per order?arrow_forwardCorry Corporation purchases 1,200,000 unit per year of one component. The Fixed Cost per order is $25. The annual carrying cost of the item is 27% of its $2 cost. Show Computations and Explanations. Determine the EOQ under each of the following conditions: A. Using the same data above, compute the EOQ. (Format: 11,111) B. What if the order cost is zero, what is the EOQ? (Format: 11,111)arrow_forwardThe demand of paper box every year is 6,400 boxes. Storage and handling costs for the paper are $40 a year per box, and it costs approximately $80 to order and receive a shipment of a paper box. a. What order size would minimize the sum of annual ordering and carrying costs? b. Compute the total annual cost using your order size from part a.arrow_forward
- Purchasing and Supply Chain ManagementOperations ManagementISBN:9781285869681Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. PattersonPublisher:Cengage Learning