Question

Short Grass Incorporated is a distributor of golf balls. Martin's Golf Supplies is a local retail outlet which sells golf balls. Martin's purchases the golf balls from Short Grass Incorporated at $0.75 per ball; the golf balls are shipped in cartons of 72. Short Grass Incorporated pays all incoming freight, and Martin's Golf Supplies does not inspect the balls due to Short Grass' reputation for high quality. Annual demand is 155,520 golf balls at a rate of 2,991 balls per week. Martin's Golf Supplies earns 12% on its cash investments. The purchase-order lead time is one week. The following cost data are available: Relevant ordering costs per purchase order $125.00 Carrying costs per carton per year: Relevant insurance, materials handling, breakage, etc., per year $ 0.77 If Martin's makes an order (1/12 of annual demand) once per month, what are the relevant total costs? What is the economic order quantity? What are the relevant costs?

Answer 1