What is the optimal order quantity for the item

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Reference no: EM131422872

1. A company works 50 weeks a year while demand is constant at 10 units a week. The cost of placing an order, including delivery charge, is estimated at $ 150. The company reports a return on its assets of 20%. The supplier of the item quoted a basic price of $ 250 a unit, with a discount of 10% on orders of 50 units or more, 15% on orders of 150 units or more and 20% on orders of 500 units or more. What is the optimal order quantity for the item.

2. The demand for a product is constant at 20 units a month. Each unit costs $ 100. Last year the cost to run the company's purchasing department (processing 2000 orders) was $ 50,000. Inventory retention costs are 20% of unit cost for capital, 5% for warehouse space, 3% for deterioration and obsolescence, and 2% for insurance. All of these costs associated with storing the item are combined at an annual fixed cost of $ 2,400. Calculate the EOQ for this article, the time between orders and the corresponding total cost. Doing the item by the company could avoid fixed costs of $ 2400 a year. With a production of 40 units per month, each unit cost $ 75 and a set up cost of $ 1000. Would it be better for the company to make the item or buy it?

Reference no: EM131422872

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