Inventory Management

Tim Madsen is the purchasing agent for Computer Center, a large discount computer store. He has recently added the hottest computer, the Power model, to the stores stock of goods. Sales of this model now are running at about 13 per week. Time purchases these computers directly from the manufacturer at a unit cost of $3,000, where each shipment takes half a week to arrive.Time routinely uses the basic EOQ model to determine the stores inventory policy for each of its more important products. For this purpose, he estimates that the annual cost of holding items in inventory is 20 percent of their purchase cost. He also estimates that the administrative cost associated with placing each order is $75.

a.Based on the information given, solve for the optimum ordering quantity.

b.Define the optimum ordering policy to ensure that computers are always in stock.