Use the basic eoq model to determine the optimal order

Reference no: EM131105067

Speedy Wheels is a wholesale distributor of bicycles. Its Inventory Manager, Ricky Sapolo, is currently reviewing the inventory policy for one popular model that is selling at the rate of 250 per month. The administrative cost for placing an order for this model from the manufacturer is $200 and the purchase price is $70 per bicycle. The annual cost of the capital tied up in inventory is 20 percent of the value (based on purchase price) of these bicycles. The additional cost of storing the bicycles-including leasing warehouse space, insurance, taxes, and so on-is $6 per bicycle per year.

(a) Use the basic EOQ model to determine the optimal order quantity and the total variable inventory cost per year.

(b) Speedy Wheel's customers (retail outlets) generally do not object to short delays in having their orders filled. Therefore, management has agreed to a new policy of having small planned shortages occasionally to reduce the variable inventory cost. After consultations with management, Ricky estimates that the annual shortage cost (including lost future business) would be $30 times the average number of bicycles short throughout the year. Use the EOQ model with planned shortages to determine the new optimal inventory policy.

Reference no: EM131105067

Questions Cloud

Version of the excel template for the eoq model : Reconsider Prob. 19.3-3. Because of the popularity of the Power model computer, Tim Madsen has found that customers are willing to purchase a computer even when none are currently in stock as long as they can be assured that their order will be fi..

Plot the payoff diagrams : Plot the payoff diagrams fur the following instruments:(a) A caplet with cap rate Rcap = 6.75% written on 3-wonth Libor Lt, that is about to expire.(b) A forward contract written on a default-free discount bond with maturity 2 years. The forward cont..

What is the value of the property : A lender offers an eight percent, 20-year, fully amortizing mortgage loan (requiring monthly payments; annual constant of .1003728) in an amount that will result in a debt coverage ratio of 1.3 and a loan-to-value ratio of 70 percent. What is the ..

Compute the expected value of perfect information : Determine the alternative that provides Clay Why bark the greatest expected monetary value (HMV). Compute the expected value of perfect information.

Use the basic eoq model to determine the optimal order : Speedy Wheels is a wholesale distributor of bicycles. Its Inventory Manager, Ricky Sapolo, is currently reviewing the inventory policy for one popular model that is selling at the rate of 250 per month.

Prepare any correcting entries that are necessary : Prepare any correcting entries that are necessary. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts...

Determine the number of units of product : a. Determine the number of units of product K to be manufactured in May. b. Compute the May cash outlay for purchases of raw material A.

Compute earnings per share data as it should appear : (Earnings Per Share) The stockholders' equity section of Tkachuk Corporation appears below as of December 31, 2004.

Misty whitworth graduated from business school together : Cindy Stewart and Misty Whitworth graduated from business school together. They now are inventory managers for competing wholesale distributors, making use of the scientific inventory management techniques they learned in school.

User Account

All Pages