Asked by Devendra Mahajan on Jun 19, 2024
Verified
Western University uses $136,000 of a particular toner cartridge for laser printers in the student computer labs each year. The purchasing director of the university estimates the ordering cost at $51 and thinks that the university can hold this type of inventory at an annual storage cost of 20% of the purchase price of $4 each. How many months' supply should the purchasing director order at one time to minimize the total annual cost of purchasing and carrying?
Storage Cost
Expenses associated with storing goods or inventory, including warehouse rent, utilities, and handling charges.
Ordering Cost
The expenses associated with placing and processing orders for goods or materials, including administrative costs and communications expenses.
Purchase Price
The amount of money paid or agreed to be paid by the buyer to acquire ownership of a product or service.
- Absorb the fundamentals of Economic Order Quantity (EOQ) and its repercussions on inventory cost efficiency.
- Evaluate the optimum quantities to order that minimize total inventory costs, including costs tied to order placement and stock retention.
- Estimate the aggregate costs incurred in inventory across multiple inventory management systems.
Verified Answer
CP
Chanchala PathrolJun 25, 2024
Final Answer :
First, calculate the EOQ from the data provided. In this problem, the "units" are dollars, and the "price" of each is 1.
Annual Demand Rate, D 136000 Setup/Ordering Cost, S 51 Holding/Carrying Cost per Unit per Year, H$0.80 Unit price, P Results Optimum Order Quantity, Q* (EOQ) 4164.13\begin{array} { | l | r | } \hline \text { Annual Demand Rate, D } & 136000 \\\hline \text { Setup/Ordering Cost, S } & 51 \\\hline \text { Holding/Carrying Cost per Unit per Year, } \mathrm { H } & \$ 0.80 \\\hline \text { Unit price, P } & \\\hline & \\\hline \text { Results } & \\\hline \text { Optimum Order Quantity, Q* (EOQ) } & 4164.13 \\\hline\end{array} Annual Demand Rate, D Setup/Ordering Cost, S Holding/Carrying Cost per Unit per Year, H Unit price, P Results Optimum Order Quantity, Q* (EOQ) 13600051$0.804164.13 One month's usage is 136000/12 = $11,333. EOQ = 4164. Month's usage = 4164/11,333 = 0.37, or about one and a half week's usage. (This is supported by the order frequency of 32.66 per year).
Annual Demand Rate, D 136000 Setup/Ordering Cost, S 51 Holding/Carrying Cost per Unit per Year, H$0.80 Unit price, P Results Optimum Order Quantity, Q* (EOQ) 4164.13\begin{array} { | l | r | } \hline \text { Annual Demand Rate, D } & 136000 \\\hline \text { Setup/Ordering Cost, S } & 51 \\\hline \text { Holding/Carrying Cost per Unit per Year, } \mathrm { H } & \$ 0.80 \\\hline \text { Unit price, P } & \\\hline & \\\hline \text { Results } & \\\hline \text { Optimum Order Quantity, Q* (EOQ) } & 4164.13 \\\hline\end{array} Annual Demand Rate, D Setup/Ordering Cost, S Holding/Carrying Cost per Unit per Year, H Unit price, P Results Optimum Order Quantity, Q* (EOQ) 13600051$0.804164.13 One month's usage is 136000/12 = $11,333. EOQ = 4164. Month's usage = 4164/11,333 = 0.37, or about one and a half week's usage. (This is supported by the order frequency of 32.66 per year).
Learning Objectives
- Absorb the fundamentals of Economic Order Quantity (EOQ) and its repercussions on inventory cost efficiency.
- Evaluate the optimum quantities to order that minimize total inventory costs, including costs tied to order placement and stock retention.
- Estimate the aggregate costs incurred in inventory across multiple inventory management systems.