Question

Rick Jerz is attempting to perform an inventory analysis on one of his most popular products. Annual demand for this product is 5,000 units; carrying cost is $50 per unit per year; order costs for his company typically run nearly $30 per order; and lead time averages 10 days. (Assume 250 working days per year.) a) The economic order quantity is 77.46 units (round your response to the nearest whole number). b) The average inventory is 38.73 units (round your response to the nearest whole number). c) The optimal number of orders per year is 64.55 orders (round your response to the nearest whole number). d) The optimal number of working days between orders is 3.87 days (round your response to two decimal places). e) The total annual inventory cost (carrying cost + ordering cost) is $ (round your response to two decimal places).f. The re-order point in _ units?

Answer 1

Answer:

(e) $3,873

(f) 200 units

Explanation:

(e)

Annual carrying cost:

= Average Inventory × carrying cost per unit

= 38.73 × 50

= $1,936.5  

Annual Ordering cost:

= Optimal number of orders per year × Ordering cost per order

= 64.55 × 30

= $1,936.5

Therefore, the total cost is the sum of annual ordering cost  and annual holding cost.

Hence,

Total Cost:

= Annual Ordering Cost + Annual Holding cost

= ($1,936.5 + $1,936.5)

= $3,873

Therefore, the total annual inventory cost is $3,873.

(f) Reorder Point:

= Average Daily Unit Sales × Delivery lead time

= (Annual demand ÷ Working days per year) × Delivery lead time

= (5,000 ÷ 250) × 10

= 200 Units

Therefore, the re-order point in 200 units.