A unit of inventory costs a company $40. Annual carrying costs are 1% for interest charges,...

80.2K

Verified Solution

Question

General Management

A unit of inventory costs a company $40. Annual carrying costsare 1% for interest charges, 1% for insurance, 2% allowance forobsolescence, $2 per unit for building overheads, $1.50 per unitfor damage and loss, and $4 per unit for miscellaneous costs.Annual demand for the item is constant at 1000 units and each ordercosts $100 to place.
Calculate the economic order quantity and the total costsassociated with stocking the item
If the supplier of the item will only deliver batches of 250units, how are the inventory carrying costs affected?
If the supplier relaxes his order size requirement, but thecompany has limited warehouse space and can stock a maximum of 100units at any time, what would be the optimal ordering policy andassociated costs?
Use the $40 price to convert dollar cost to percentages.Remember to think carefully about which costs should and should notbe included in the calculation of inventory carrying costpercentage. You have to do this calculation before you cancalculate EOQ. The rule is only include those costs which varydirectly with inventory levels.
Use Excel to show all the answer.

Answer & Explanation Solved by verified expert

4.2 Ratings (756 Votes)

The formula that we use for economic order quantity isQ sqrt2DSHNow once we have that we can calculate the cost ofoperationTC DSQ HQ2 PDThe cost associated with inventory See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member