You have been hired to install an inventory control system for Dooly Company. Among the inventory control features that Dooly wants are indicators of how much to order and when. The following information is furnished for one item, called a duosonic, that is carried in inventory:

1. Duosonics are sold by the gross (12 dozen, or 144) at a list price of $800 per gross, FOB shipper. Dooly receives a 40% trade discount off list price on purchases in gross lots.
2. Freight cost is $20 per gross from the shipping point to Dooly’s plant.
3. Dooly uses about 5,000 duosonics during a 259-day production year but must purchase a total of 36 gross per year to allow for normal breakage. Minimum and maximum usages are 12 and 28 duosonics per day, respectively.
4. Normal delivery time to receive an order is 20 working days from the date that a purchase request is initiated. A stock-out (complete exhaustion of the inventory) of duosonics would stop production, and Dooly would purchase duosonics locally at list price rather than shut down.
5. The cost of placing an order is $30.
6. Storage space cost is $24 per year per gross.
7. Insurance and taxes are approximately 12% of the net delivered cost of average inventory, and Dooly expects a return of at least 8% on its average investment. (Ignore ordering costs and carrying costs in making these computations.)

Required:
1. Prepare a schedule computing the total annual cost of duosonics based on uniform order lot sizes of one, two, three, four, and five gross of duosonics. (The schedule should show the total annual cost according to each lot size.) Indicate the EOQ.

2. Prepare a schedule computing the minimum stock reorder point for duosonics. This is the point below which reordering is necessary to guard against a stock-out. Factors to be considered include average lead period usage and safety stock requirements. 

Answer rating: 100% (QA)

Economic Order Qunatity E0Q is the ideal request amount ... View the full answer