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Compute the total annual cost of ordering

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Reference no: EM132813486

Victor sells a line of upscale evening dresses in his boutique. He charges $300 per dress, and sales average 30 dresses per week.

Currently, Victor orders a 10-week supply at a time from the manufacturer each time his inventory position drops to 100 dresses.
He pays $150 per dress, and it takes two weeks to receive each delivery. Victor estimates his administrative cost of placing each order at $225.

Because he estimates his cost of inventory at 20%, each dollar's worth of idle inventory costs him $0.20 per year. Assume 52 weeks a year.

(a) Compute the total annual cost of ordering and carrying inventory for Victor's current policy.

(b) Under the EOQ model, if he wishes to minimize his annual cost, when and how much should Victor order in each batch?
What will be his annual cost? In this problem, make sure you follow all of the EOQ model assumptions and ignore the current policy.

(c) Report the number of inventory turns under the current (part a) and proposed policies (part b)

Reference no: EM132813486

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