Inventory Costs, EOQ, Reorder Point
A local TV repair shop uses 36,000 units of a part each year (an average of 100 units per working day). It costs $20 to place and receive an order. The shop orders in lots of 400 units. It costs $4 to carry one unit per year in inventory.
Required
1. Calculate the total annual ordering cost.
2. Calculate the total annual carrying cost.
3. Calculate the total annual inventory cost.
4. Calculate the EOQ.
5. Calculate the total annual inventory cost using the EOQ inventory policy.
6. How much is saved per year using the EOQ versus an order size of 400 units?
7. Compute the reorder point, assuming the lead time is three days.
8. Suppose that the usage of the part can be as much as 110 units per day. Calculate the safety stock and the new reorder point.