Chapter 11 Inventory

Use the following information to answer questions 6 12 (note: in order to receive partial marks, you can show your work in question #12).

BIKO is a bike retailer located in the outskirts of Toronto. BIKO purchases bikes from VMX in orders of 250 bikes which is the current economic order quantity. VMX is now offering the following bulk discounts to its customers:

• 2% discount on orders above 200 units
• 4% discount on orders above 300 units
• 6% discount on orders above 400 units

BIKO is wondering if the EOQ model is still the most economical and whether increasing the order size would actually be more beneficial. Following information is relevant to forming the decision:

• The store sells 50 bikes per day and is open 200 days per year.
• Ordering cost is $100 per order
• Annual holding cost is comprised of the following:
• 5% interest costs per unit calculated using the net purchase price
• Warehousing cost of $6 per unit
• Purchase price is $200 per unit before discount

QUESTION 9

1. What is the total cost of the feasible EOQ (rounded to nearest dollar)? (3 marks)

   		$1,885,580
   		$2,100,000
   		$1,925,585
   		$1,965,975

3 points

QUESTION 10

1. What order quantity would you recommend to BIKO to minimize the total cost of ordering and holding costs. (3 marks)

   		250
   		358
   		400
   		300

3 points

QUESTION 11

1. The lead-time for each order is 5 days and BIKO wants to maintain a minimum of 25 bikes in inventory at all times (safety stock). At what inventory level should the BIKO place the order? (3 marks)

   		250
   		275
   		400
   		425

3 points

QUESTION 12

1. In order to receive partial marks for questions 9-11, you may wish to show your work below. (0 marks)