Determine the economic order quantity

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A garment store is selling a variety of garments. The purchase cost of the basic type of garment is $0.5 per sq. ft. and the fixed ordering cost is $80 per order. The demand for this type of garment is 25,000 sq. ft. per month. The annual inventory holding cost for the garment is 12% of the purchase cost. Assume that the garment store operates 30 days per month and 12 months per year on average.

a) Determine the economic order quantity. What is the corresponding time between placements of two consecutive orders with the economic order quantity? What is the total annual inventory cost on ordering and inventory holding (ordering cost + holding cost) with the economic order quantity?

b) If the order lead time is 5 days, what is the reorder point based on the level of on-hand inventory?

c) Suppose the supplier of the garment store requires that orders should be multiples of 1000 sq. ft., what should be the optimal order quantity? Please justify your answer. Compared with a), how much additional total annual inventory cost (ordering cost + holding cost) would the garment store incur in meeting this requirement?

Reference no: EM132976563

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