Economic order quantity; ordering and carrying costs (similar to Self-Study Problem 1)...

Economic order quantity; ordering and carrying costs

(similar to Self-Study Problem 1)

Starr Co. predicts it will use 63,000 units of material during the year. The expected daily usage is 500 units, and there is an expected lead time of five days and a desired safety stock of 1,500 units. The material is expected to cost $5 per unit. Starr anticipates it will cost $194.95 to place each order. The annual carrying cost is $0.50 per unit.

Required:

1. Compute the order point.

2. Determine the most economical order quantity by use of the formula (round to the nearest whole unit).

3. Calculate the total cost of ordering and carrying at the EOQ point.

Reference:

Order Point; Economic Order Quantity; Ordering and Carrying Costs

Louisville Bat Co.

Louisville Bat Co., manufacturer of top-of-the-line baseball bats from Northern white ash, predicts that 8,000 billets of lumber will be used during the year. (A billet is the quantity of rough lumber needed to make one bat.) The expected daily usage is 32 billets. The expected lead time is 10 days, and there is a safety stock of 500 billets. The company expects the lumber to cost $4 per billet. It anticipates that it will cost $40 to place each order. The annual carrying cost is $0.25 per billet.

Required:

1. Calculate the order point.

2. Calculate the most economical order quantity (EOQ).

3. Calculate the total cost of ordering and carrying at the EOQ point.