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Victor current total annual cost of ordering

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Reference no: EM131315066

Victor sells a line of upscale evening dresses in his boutique. He charges $425 per dress, and sales average 35 dresses per week. Currently, Victor orders a 15-week supply at a time from the manufacturer. He pays $140 per dress, and it takes three weeks to receive each delivery. Victor estimates his administrative cost of placing each order at $375. He estimates his cost of inventory at 25% of the cost of each dress.

Using Victor's current ordering policy, determine the following:

  • What is Victor's current total annual cost of ordering (annual set-up cost)?
  • What is Victor's current total annual cost of carrying inventory (annual holding cost)?
  • What is the average inventory?
  • What is the ReOrder Point?
  • What is the inventory turns for Victor's current policy?

Victor want to lower his inventory costs:

  • How much should Victor order in each batch (EOQ)?
  • What is Victor's new total annual cost of ordering (annual set-up cost)?
  • What is Victor's new total annual cost of carrying inventory (annual holding cost)?
  • What is the average inventory?
  • What is the ReOrder Point?
  • What is the inventory turns for the new policy?

Compare Victor's original ordering policy with the new one to minimize costs:

  • What is the annual savings with the new policy?

Reference no: EM131315066

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