Sturdivant Sound Systems manufactures and sells sound systems for both home and auto. All parts of the sound systems, with the exception of DYD players, are produced in the Rochester, New York, plant. DVD players used in the assembly of Sturdivant systems are purchased from Morris Electronics of Concord, New Hampshire. Sturdivant purchasing agent Mary Kim submits a purchase requisition for DVD players once every 4 weeks. The company’s annual requirements total 5,000 units (20 per working day), and the cost per unit is $60. (Sturdivant does not purchase in greater quantities because Morris Electronics does not offer quantity discounts.) Because Morris promises delivery within 1 week following receipt of a purchase requisition, rarely is there a shortage of DVD players. (Total time between date of order and date of receipt is 5 days.)

Discussion Questions

1. Compute the optimal order quantity of DVD players.

2. Determine the appropriate reorder point (in units).

3. Compute the cost savings that the company will realize if it implements the optimal inventory procurement decision.

4. Should procurement costs be considered a linear function of the number of orders?