Determine the economic order quantity for the new product

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Reference no: EM131356369

Kim Clark has asked you to help him determine the best ordering policy for a new product. The demand for the new product has been forecasted to be about 1,000 units annually. To help you get a handle on the carrying and ordering costs, Kim has given you the list of last year's costs. He thought that these costs might be appropriate for the new product.

COST FACTOR	COST ($)	COST FACTOR	COST ($)
Taxes for the warehouse	2,000	Warehouse supplies	280
Receiving and incoming inspection	1,500	Research and development	2,750
New product development	2,500	Purchasing salaries&wages	30,000
Acct. Dept. costs to pay invoices	500	Warehouse salaries&wages	12,800
Inventory insurance	600	Pilferage of inventory	800
Product advertising	800	Purchase order supplies	500
Spoilage	750	Inventory obsolescence	300
Sending purchasing orders	800	Purchasing Dept. overhead	1,000

He also told you that these data were compiled for 10,000 inventory items that were carried or held during the year. You have also determined that 200 orders were placed last year. Your job as a new operations management graduate is to help Kim determine the economic order quantity for the new product.

Reference no: EM131356369

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