(1) Stevens Inc. has an annual usage of 100 units of Item M, having a purchase price of $55 per unit. The following data are applicable to Item M:
Ordering cost ............................................ $5 per order
Carrying cost percentage .............................. 15%
Required:
Compute the economic order quantity.
(2) Lee Equipment Company estimates a need for 2,250 Ajets next year at a cost of $3 per unit. The estimated carrying cost is 20%, and the cost to place an order is $12.
Required:
Compute the economic order quantity.
(3) Tunsel Corporation has been buying Product A in lots of 1,200 units, which represents a four-months supply. The cost per unit is $100; the order cost is $200 per order; and the annual inventory carrying cost for one unit is $25.
Required:
Compute the economic order quantity.
(4) Mozart Company estimates that it will need 25,000 cartons next year at a cost of $8 per carton. The estimated carrying cost is 25% of average inventory investment, and the cost to place an order is $20.
Required:
Compute (a) the economic order quantity and (b) the frequency, in days, that orders should be placed, based on a 365-day year.
(5) The Webb Company estimates that it will need 18,000 units of Material X next year, at a cost of $15 per unit. The estimated carrying cost is 20% of average inventory investment and the cost to place an order is calculated to be $15.
Required:
Compute (a) the EOQ, (b) the frequency with which orders should be placed, in days, based on a 365-day year, and (c) the EOQ if Material X costs $6 per unit and other estimates remain unchanged.
(6) The Sweetpea Company estimates that it will need 18,000 Material Y units next year at a cost of $7.50 per unit. The estimated carrying cost is 20% of average inventory investment, and the cost to place an order is calculated to be $15.
Required:
Compute (a) the most economical number of units to order, (b) the frequency, in days, for placing orders, based on a 365-day year, and (c) the most economical order quantity if Material Y costs $2.50 per unit and other estimates remain as originally stated.
(7) Criggins Sporting Goods Inc. buys baseballs at $20 per dozen from its wholesaler. Criggins sells 48,000 dozen balls evenly throughout the year. The firm incurs interest expense of 10% on its average inventory investment. In addition, rent, insurance, and property tax for each dozen baseballs in the average inventory is $.40. The cost involved in handling each purchase order is $ 10.
Required:
Compute (a) the economic order quantity and (b) the total annual inventory expense to sell 48,000 dozen baseballs if orders of 800 dozen each are placed evenly throughout the year.
(8) A customer has been ordering 5,000 specially designed metal columns at the rate of 1,000 per order during the past year. The variable production cost is $8 per unit: $6 for materials and labor, and $2 for factory overhead. It costs $ 1,000 to set up for one run of 1,000 columns, and the inventory carrying cost is 20%. Because this customer may buy at least 5,000 columns per year, the company would like to avoid making five different production runs.
Required:
Compute the most economical production run.
(9) Stemson Company estimates that it will need 12,000 units of Material W next year, at a cost of $9 per unit. The estimated carrying cost is 20%, and the cost to place an order is calculated to be $16.
Required:
Compute (a) the economic order quantity, (b) the frequency of order placement, and (c) the economic Order quantity if forecast usage is changed to 8,000 and the carrying cost percentage is 22%.
(10) An item costs $10, has a yearly usage volume of 500 units, an ordering cost of $6, and a carrying cost of 25%.
Required:
(a) Compute the economic order quantity and the total ordering and carrying cost per year.
(b) Determine the effect on the total ordering and carrying cost if the order quantity is 10% above the EOQ. Comment on the magnitude of the effect.
(11) Joshua Inc. manufactures a line of walnut office products. Management estimates the annual demand for the double walnut letter tray at 6,000 units. The tray sells for $80. The costs relating to the letter tray are (a) the variable manufacturing cost per tray, $50; (b) the cost to initiate a production run, $300; and (c) the annual cost of carrying the tray in inventory, 20%. In prior years, the production of the tray has been scheduled in two equal production runs.
Required:
Find the expected annual cost savings the company could experience if it employs the economic order quantity model to determine the number of production runs that should be initiated during the year.