The Cloth Centre sells fabrics to a wide range of industrial and consumer users. One of the products it carries is denim cloth, used in the manufacture of jeans and carrying bags. The supplier for the denim cloth pays all incoming freight. No incoming inspection of the denim is necessary because the supplier has a track record of delivering high-quality merchandise. The purchasing officer of the Cloth Centre has collected the following information:
Annual demand for denim cloth........... 20,000 metres
Ordering cost per purchase order........... $160
Carrying cost per year.............. 20% of purchase costs
Safety-stock requirements........... None
Cost of denim cloth................ $8 per metre
The purchasing lead time is 2 weeks. The Cloth Centre is open 250 days a year (50 weeks for 5 days a week).
REQUIRED
1. Calculate the EOQ for denim cloth.
2. Calculate the number of orders that will be placed each year.
3. Calculate the reorder point for denim cloth.