LESSON #10: INVENTORY MANAGEMENT HOMEWORK

EOQ & OPR

1) Glorious Glass Corporation manufactures various glass products including a car window. The setup cost to produce the car window is $1,200. The cost to carry a window in inventory is $3 per year. Annual demand for the car window is 12,000 units.

Required:

Calculate the OPR (i.e., the number of units that should be manufactured per production run)

Calculate the total carrying cost at the OPR

Calculate the total setup cost at the OPR

Calculate the total annual cost at the OPR

(2) Owen-King Company sells optical equipment. Lens Company manufactures special glass lenses. Owen-King Company orders 5,200 lenses per year at $20 per lens. Owen-King Company has a 30% hurdle rate. The following data are available:

Relevant ordering costs $21.25/ per purchase order

Relevant carrying cost--insurance, handling, breakage,

etc., per year (Do not forget to include opportunity cost) $2.50/unit

Required:

1. What is the economic order quantity (i.e., the number of units that should be

bought per purchase order)?

2. What is the total carrying cost?

3. What is the total ordering cost?

4. What is the total annual cost at the EOQ?