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Outdoor Living Manufacturers uses 1,000 units of a product per year. The fixed cost is $28 per order, while the

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Outdoor Living Manufacturers uses 1,000 units of a product per year. The fixed cost is $28 per order, while the carrying cost is $5 per unit per year. The lead time is 5 days and, therefore, the firm keeps 7 days’ usage in inventory as safety stock.
a. Calculate the economic order quantity (EOQ) and the average inventory.
b. How many orders will Outdoor Living Manufacturers place during one year?
c. When should Outdoor Living Manufacturers place its orders?
d. Suppose Outdoor Living Manufacturers does not keep safety stock. Explain the changes, if any, that will occur in (1) order cost, (2) carrying cost, (3) total inventory cost, (4) reorder point, and (5) EOQ.

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To solve this problem we can use the Economic Order Quantity EOQ model The EOQ formula is EOQ sqrt frac 2DS H Where D Annual demand 1 000 units per ye…View the full answer


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Related Book For  answer-question
Principles Of Managerial Finance

Principles Of Managerial Finance

ISBN: 9781292018201

14th Global Edition

Authors: Lawrence J. Gitman, Chad J. Zutter

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Question Details
Chapter # 15- Working Capital and Current Assets Management
Section: Problems
Problem: 6
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Question Posted: September 16, 2023 02:15:45
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