Cherylene Brown has asked you to help her 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, Cherylene has given you the list of last year’s costs. She thought that these costs might be appropriate for the new product.

She 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 Cherylene determine the economic order quantity for the new product.

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COST FACTOR Taxes for the warehouse Receiving and incoming inspection New product development Acct. Dept. costs to pay invoices Inventory insurance Product advertising Spoilage Sending purchasing orders COST ($) 2,000 1,500 2,500 COST FACTOR Warehouse supplies Research and development Purchasing salaries & wages 500 Warehouse salaries & wages 600 Pilferage of inventory 800 Purchase order supplies 750 Inventory obsolescence 800 Purchasing Dept. overhead COST ($) 280 2,750 30,000 12,800 800 500 300 1,000