Ergonomics Inc. sells ergonomically designed office chairs. The company has the following information:
Average demand = 22 units per day
Average lead time = 38 days
Item unit cost = $58 for orders of less than 280 units
Item unit cost = $56 for orders of 280 units or more
Ordering cost = $33
Inventory carrying cost = 25%
The business year is 250 days
Assume there is no uncertainty at all about the demand or the lead time.
1) Calculate EOQ if unit cost is $58 and $56. (Note: These EOQs do not need to be feasible in their price range.)
Item unit cost = $58
Item unit cost = $56
2) Calculate annual ordering costs for each alternative?
Item unit cost = $58
Item unit cost = $56
3) Calculate annual inventory carrying costs for each alternative?
Item unit cost = $58
Item unit cost = $56
4) Calculate annual product costs for each alternative?
Item unit cost = $58
Item unit cost = $56
5) What will be the total costs for each alternative?
Item unit cost = $58
Item unit cost = $56
6) Based on your analysis, how many chairs should they order at a time?
7) How much the firm can save annually by using the order quantity in Part f. instead of the first EOQ shown in Part a?