RajDee Furniture Company (RFC) buys and sells office furniture. The company buys chairs from a manufacturer...
RajDee Furniture Company (RFC) buys and sells office furniture. The company buys chairs from a manufacturer for $40 per unit. Order costs are $200 per order and there is a lead time of 10 days for each order to arrive from the manufacturer to RFC warehouse. Inventory carrying cost for RFC is 10%. Average yearly demand for the chairs is 40,000 units. Answer the following questions, assuming there is no uncertainty at all about the demand or the lead time.
How many units should RFC order each time?
a) 200 b) 2000 c) 400 d) 100
Homework Answers
Annual demand (D) = 40000 units
Ordering cost (S) = $200
Carrying cost (H) = 10% of unit price = 10% of $40 = $4
Economic order quantity = √(2DS/H)
= √[(2 × 40000 × 200) / 4]
= √(16000000/4)
= √4000000
= 2000 units
So the answer is option b
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