Question

Please Help me !!!

Bundaberg Glass Company is a distributor of car windscreens. The windscreens are manufactured in Japan and shipped to Bundaberg. The management is expecting an annual demand of 30 000 windscreens. The purchase price of each windscreen is $500. Currently, company orders 250 windscreens per order. According to the management, it takes two (2) weeks to receive a new order, and the company works a 6-day week for 50 weeks each year. Other costs associated with ordering and maintaining an inventory of these windscreens are given below:

• The cost incurred in the purchase order department for placing and processing 60 orders for the last year was $30 000 (including fixed costs of$6 000). Variable ordering costs tend to increase by 20% annually.

• Insurance cost on inventory is 10% of purchase price of per windscreen.

• Damage and shortage cost is $15 per windscreen.

• Other inventory holding cost is $10 per windscreen.

  Required:
  (i) Determine the optimal order quantity for car windscreens using the economic order

  quantity (EOQ) model. Show your calculations. (Round the answer to the nearest whole number)

Answer 1

Annual Order/Demand - 30,000 units

Per Unit Cost - $250

Inventory Holding Cost/ Carrying Cot - $10

Ordering Cost - Consider only Variable Cost, Fixed cost in all the cases are same.

VARIABLE COST	60 ORDERS	$24000
VARIABLE COST	1 ORDERS	=$24000*1/60
		=400

Current Year Ordering Cost (Increase 20%) = $400*120/100 = $480

Economic Order Quantity =

2* Annual Demand * OrderingCost/CarryingCost

EOQ =

V2 * 30000 * 480/10

EOQ = 1697 QTY PER ORDER