Homework Answers
Answer:
Demand per month = 735 phasers
Average Inventory = Average demand p,m/2 =735/2 = 367.5
No of orders = 12 (ordered every month )
Annual Demand = 735*12 = 8820
Order Cost per order = $365
Carrying cost per phaser per year = $26
a) Total Carrying Cost
= Average Inventory x Carrying cost per phaser per year
=367.5 x 26 = $9,555
b) Restocking Cost
= No of orders every year x Order Cost per order
= 12 x 365 = $ 4,380
c) Economic Order Quantity
=((2 X Annual Demand in units x Order Cost per order) / (Holding Costs per unit per year))^1/2
=((2*8820*365)/(26))^0.5
=497.63
d) Optimal number of order per year
= Annual Demand/Economic Order Quantity
= 8820/497.63
= 17.72
e) Should the company decrease or increase the order size
The company should decrease the order size from 735 to 498 phasers, since the economic order quantity shows the size at which the Total cost including the ordering cost and carrying cost will be minimal.
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