Question

Plattsburgh Tech’s annual demand is 3,000 units which costs $30 per unit. You are in charge of inventory management of Plattsburgh Tech. You know that the annual holding cost is 20% of the unit price and ordering cost is $102.40 per order. Plattsburgh Tech. operates 300 days a year.

Required:
a. Compute EOQ
b. Compute the total inventory cost for EOQ
c. Compute the length of an order cycle
d. Compute ROP assuming that the delivery load time is three days

Answer 1

Answer:

a. 320 units

b. $1,920

Explanation:

EOQ = √ 2 × Annual Demand × Ordering Cost per Order / Holding Cost per unit

        = √ (2 × 3,000 units × $102.40 / ($30 × 20%))

        = 320 units

total inventory cost = ordering cost + holding cost

                                = 3,000 units/ 320 units  × $102.40 + 320 units/ 2 × ($30 × 20%

                                = $960 + $960

                                = $1,920