QUESTION 16

1. PROBLEM #2: Inventory Control

   The Everett Jewels Company sells watches. Annual demand for watches is 48000. The purchase cost of a watch is $38.00. The annual inventory holding rate is 20% of the purchase cost. The cost of placing an order is $114.00. The lead-time is 4 days, and assume that there are 200 working days in the year. Round off numbers to the nearest integer, if necessary.

   What is the Economic Order Quantity or EOQ?

2. Refer to PROBLEM #2 in question 16.

   Suppose you order every time a quantity equal to the EOQ. Then, what is the total cost of placing the orders and holding inventory per year? (Hint: You need to calculate: TC=AOC+AHC)

3. Refer to PROBLEM #2 in question 16.

   What is the cycle time under the EOQ policy?

4. Refer to PROBLEM #2 in question 16.

   What is the re-order point under the EOQ policy?

5. Refer to PROBLEM #2 in question 16.

   Suppose you order every a quantity equal to 2000 instead of the EOQ. Then what is the total cost of placing the orders per year? (You have to calculate AOC using Q=2000 in the formula)

6. Refer to PROBLEM #2 in question 16.

   Suppose you order every a quantity equal to 2000 instead of the EOQ. Then what is the total cost of holding the inventory per year? (You have to calculate AHC using Q=2000 in the formula)

7. Refer to PROBLEM #2 in question 16.

   Suppose you order every a quantity equal to 2000 instead of the EOQ. Then what is the increase in the total costs (i.e. penalty) per year for adopting this policy instead of the EOQ policy? (First , you have to calculate TC = AOC+AHC for this policy and then subtract the total cost of EOQ policy from it)

8. Refer to PROBLEM #2 in question 16.

   Suppose you order every a quantity equal to 800 instead of the EOQ. Then what is the total cost of placing the orders per year? (You have to calculate AOC using Q=800 in the formula)

9. Refer to PROBLEM #2 in question 16.

   Suppose you order every a quantity equal to 800 instead of the EOQ. Then what is the total cost of holding the inventory per year? (You have to calculate AHC using Q=800 in the formula)

10. Refer to PROBLEM #2 in question 16.

    Suppose you order every a quantity equal to 800 instead of the EOQ. Then what is the increase in the total costs (i.e. penalty) per year for adopting this policy instead of the EOQ policy? (First , you have to calculate TC = AOC+AHC for this policy and then subtract the total cost of EOQ policy from it)