A flower shop uses 800 clay pots a month. The pots are purchased at $2 each. Annual carrying costs are estimated at $0.60 per pot per year and ordering costs are $20 per order. The manager has been currently using an order size of 1600 flower pots per order.
Please show all work in a Word document.
Please answer each of the following Questions:
1. What additional cost is the shop incurring by using this current order size rather than the economic order quantity?
2. Other than potential cost savings, what benefit(s) would using the optimal order quantity yield?
3. What is the number of orders per year if the manager uses the current order quantity of 1600?
4. What is the number of orders per year if the manager uses the Economic Order Quantity?
5. What is the maximum number of flower pots that are held in inventory in a given ordering cycle?
6. How long will each order last (in months) if the manager uses the Economic Order Quantity?
7. Assume that the lead time for the pots is 1 month. What is the Reorder Point? Verbally, interpret the meaning of this Reorder Point.