Question

The soft goods department of a large department store sells 175 units per month of a certain large bath towel. The unit cost of a towel to the store is $2.50 and the cost of placing an order has been estimated to be $12.00. The store uses an inventory carrying charge of I = 27% per year. Determine the following: a. What is the optimal order quantity? 273.25 b. What are the number of orders? [ Select] c. What is the cost of managing the inventory 184.44 d. If the department store is open 350 days per year, how many days are between orders? [Select] e. If the lead time from the supplier takes 10 days, what is the re- order point? [Select]

Answer 1

b) Number of orders = Annual Demand/ EOQ = (12*175)/(273.25) = 7.68 orders

Hence number of orders to be placed are 7.68 or 8 orders (rounded)

d) Number of days between order is given as EOQ/(Annual Demand)*(No of working days) = 273.25/(12*175)*350 = 45.54 days

Hence the number of days between orders is 45.54 days

e) Reorder point = Daily Demand*Lead Time = (175)/(30)*10 = 58.33

The above is assuming that each month consists of 30 days. Hence the reorder point is 58.33