Reference no: EM132729985

Question - Assuming you just became the manager of a company that sells coffee mugs. You estimated that 4400 mugs will be demanded in two years. You found a company that produces the mugs. You calculated that you would be paying $6 for the transportation and $2 to prepare the ordering request whenever you make an order for the mugs. Holding cost per year as a fraction of unit cost is 20%. Your company operates 11 months or 330 days or 44 weeks per year. When you hold the mugs in your inventory, it costs $1 per mug per year. You are considering the following ordering options:

Option 1: order all quantity at one time per year, Option 2: make one order per quarter, and Option 3: make one order per week.

Required -

a) Calculate the total annual costs including material costs associated with each option.

b) Is there another option, cheaper than any of these? If yes, calculate its total annual costs.

c) Calculate the reorder point, assuming it takes two weeks to receive the mugs after ordering them.