Joe's Drones is attempting to minimize total inventory cost and maximize profits this year. Each drone...

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Joe's Drones is attempting to minimize total inventorycost and maximize profits this year. Each drone costs Joe $100 tobuy and he sells them for $150 each. Joe’s mom helps with thepurchasing and ordering and he pays her $100 for every order sheplaces. Joe leases warehouse space from a friend where he can storehis inventory and he pays $2.50 per month for each board that hehas to store to use this space.
Drones are a hot item and Joe expects to sell 2,500 ofthem this year. He is currently ordering once a month, but hethinks that he can save money if he optimizes his orderquantity.
a) If Joe continues to order once a month this year, what willhis Total Annual Cost of Inventory be?
b) Assuming Joe sells everything that he orders, what will hisannual profit be if he continues to order once a month
c) What quantity should Joe to order that would minimize TotalCost of Inventory (not Total Cost - the is Inventory only)?
d) How much will Joe’s annual profit change if he orders basedon the EOQ rather than ordering once a month?

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3.6 Ratings (612 Votes)

Annual demand 2500 Order quantity if it is ordered once a month 2500 12 20833 Annual unit inventory holding cost 250 month x 12 months 30 Ordering cost 100 per order Annual ordering cost Ordering cost x Number of orders Ordering cost x Number of orders 100 x 12 1200 Annual inventory holding cost Annual unit See Answer

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