Find the maximum on-hand inventory level

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Reference no: EM132257325

1. ZIP Electric Bike Company buys special batteries to power its most popular model, called the Zippy. Since ZIP’s successful IPO last year and because of high-profile endorsements by several well-known sports figures, demand has taken off, and the company is selling about 100,000 Zippies per year. The batteries cost $50 each. ZIP figures that the impact of holding inventory is 15% per year and placing an order costs the company $200.

Using the economic order quantity model, determine

(1) the optimal order quantity,

(2) the optimal time between orders, and

(3) the total annual relevant cost

2. In the previous problem, suppose that when ZIP is out of batteries, the company cannot sell its Zippy electric bike. The company determines that this costs it $20 per bike per year because of the unhappy customers.

Answer the following:

(1) What is the optimal order quantity?

(2) Compute the maximum number of backorders.

(3) Find the maximum on-hand inventory level.

(4) What is the total annual relevant cost with backorders? Does it make any sense to allow backorders?

Reference no: EM132257325

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