Reference no: EM132959183

Question - ABC Corporation resells one type of candle. It has 250 working days. Each day, it sells an average of 500 boxes but may sometimes sell a maximum of 600 boxes. The supplier takes an average of 5 days to deliver the order. During busier times, the supplier may take 7 days.

Based on ABC's records, ordering cost average P400 per order. Storage cost per box average P5 per year. There is also an opportunity cost of 1% per year for every peso invested in inventories. Each box of candles costs P450.

If ABC would continue its current inventory management policy, it would keep 10,000 boxes as safety stock and order ten- days-worth of inventory.

(A) Reorder Point

1. What should be the reorder point in boxes?

2. How much would the normal lead time usage be?

3. How much should ABC keep as safety stock?

(B) Economic Order Quantity

4. What is the annual demand for the boxes of candles?

5. How much is the carrying cost of one box of candles for one year?

6. What is the economic order quantity for the boxes of candles? Round UP.

7. How many orders will be made per year on average if the economic order quantity was followed? Round off to two decimal places.

8. How much would the ordering cost for the year be on average if the economic order quantity was followed?

9. What would the average number of boxes be if the economic order quantity was used (excluding safety stock)? Round off to two decimal places.

10. How much would the carrying cost for the year if the economic order quantity was followed (excluding safety stock)?

11. How much would the total inventory related (ordering plus carrying) costs be if the economic order quantity was followed (excluding safety stock)?

(C) Reorder Point and Economic Order Quantity

12. What would the average number of boxes be if the safety stock from Part A was kept and the EOQ from Part B was followed? Round off to two decimal places.

13. How much would the carrying cost for the year be based on item 19?

14. How much would the total inventory related (ordering plus carrying) costs be if the economic order quantity was followed (including safety stock)?

(D) Cost-Benefit Analysis: If ABC maintains its current inventory policy for the year,

15. How much would the forecasted carrying cost be?

16. How much would the forecasted ordering cost be?

17. How much would the total inventory-related costs be?

18. How much would the entity save it followed the reorder point and economic order quantity models?

19. How would you describe the entity's current policy?