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Relationships for inventory costs

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The following relationships for inventory costs have been established for the Desreumaux Service Corporation:

(1) Orders must be placed in multiples of 50 units.

(2) Annual sales are 1,000,000 units.

(3) The purchase price per unit is $4.

(4) Carrying cost is 25 percent of the purchase price of goods.

(5) Cost per order placed is $40.

(6) Desired safety stock is 10,000 units; this amount is on hand initially.

(7) Two days are required for delivery.

a. What is the EOQ?

b. How many orders should the firm place each year?

c. At what inventory level should a reorder be made?

d. Calculate the total cost of ordering and carrying the working inventory if the order quantity is (1) 8,000 units, (2) 8,950 units, or (3) 10,000 units. What is the cost of carrying the safety stock?

Reference no: EM131537568

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