Reference no: EM133005230
Question - Woden Furniture Ltd distributes children's furniture products in the region. The following information pertains to inventory for the next year:
Expected annual demand in units 22,500
Purchase price per unit $16
Relevant cost per purchase order $150
Relevant carrying costs per unit ?
Required annual return on investment 10%
Warehousing, insurance and other carrying costs $1.40
Current order lot size in units 2,250
Purchase lead time in days 5
Maximum daily sales 120
Work year in days 250
Required -
1. Determine the economic order quantity (EOQ) for Woden Furniture Ltd.
2. Using the EOQ determined in requirement 1, calculate:
total annual ordering costs, and
total annual carrying costs.
Round your answers to the nearest dollar.
3. What is the annual savings in inventory costs to Woden Furniture Ltd, if it was to change its current order lot size of 2,250 to the economic order quantity calculated in requirement 1?
4. What is the reorder point assuming average demand and average lead time?
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