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.

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 newproduct.

Cost Factor Cost (S) Cost Eactor Research and Purchasing salaries Warehouse salaries Cost ($) 280 Taxes for the warehouse Receiving and incoming 2,000Warehouse supplies 1.500 development 2.500 wages inspectioR New product 2,750 development 30,000 Acct. Dept. costs to pay invoices Inventory insurance Product advertising Spoilage Sending purchasing 500&wages 600 Plferage of inventory 12,800 800 800Purchase order supplies500 750 Inventory obsolescence300 Purchasing Dept orders 800 overhead 1,000