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How many units of safety stock should vargas hold

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Reference no: EM132512891

Vargas enterprises wishes to determine the economic order quantity (EOQ) for a critical and expensive inventory item that is used in large amounts at a relatively constant rate throughout the year. The firm uses 450,000 units of the item annually, has order costs of $375 per order, and its carrying costs associated with this item are $28 per unit per year. The firm plans to hold safety stock of the item equal to 5 days of usage, and it estimates that it takes 12 days to receive an order of the item once placed. Assume a 365-day year.

Question 1: Calculate the firm's EOQ for the item of inventory described above.

Question 2: What is the firm's total cost based upon the EOQ calculated in part a?

Question 3: How many units of safety stock should Vargas hold?

Question 4: What is the firm's reorder point for the item of inventory being evaluated? (Hint: Be sure to include the safety stock.)

Reference no: EM132512891

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