Kim Clark has asked you to help him determine the best ordering policy for a new product. The demand for the new product has been forecasted to be about 1,000 units annually. To help you get a handle on the carrying and ordering costs, Kim has given you the list of last year's costs. He thought that these costs might be appropriate for the new product.
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COST FACTOR
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COST ($)
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COST FACTOR
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COST ($)
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Taxes for the warehouse
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2,000
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Warehouse supplies
|
280
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|
Receiving and incoming inspection
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1,500
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Research and development
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2,750
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|
New product development
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2,500
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Purchasing salaries&wages
|
30,000
|
|
Acct. Dept. costs to pay invoices
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500
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Warehouse salaries&wages
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12,800
|
|
Inventory insurance
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600
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Pilferage of inventory
|
800
|
|
Product advertising
|
800
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Purchase order supplies
|
500
|
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Spoilage
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750
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Inventory obsolescence
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300
|
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Sending purchasing orders
|
800
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Purchasing Dept. overhead
|
1,000
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He also told you that these data were compiled for 10,000 inventory items that were carried or held during the year. You have also determined that 200 orders were placed last year. Your job as a new operations management graduate is to help Kim determine the economic order quantity for the new product.