Reference no: EM132738404

Question - Skullcandy makes a variety of earbuds and earphones that are popular among college students. Many of their products use a standard thin black cable which is purchased from a local supplier in 300-foot reels.

In recent months the company has been implementing JIT and Lean principles in order to reduce costs and improve quality. One such initiative has led to a VMI (vendor managed inventory) agreement with its cable supplier, thus reducing Skullcandy's ordering costs from $26.98 to $4.05. Annual demand is 3,100,000 feet. Annual holding costs are $1.65 per 300-foot reel.

Hint 1: Remember to do correct unit conversions to account for how the inventory is purchased (in reels).

Hint 2: This is a purchasing order quantity problem (EOQ), not a production order quantity problem. For this question we are combining a JIT concept (lower ordering costs) with what you learned from a previous chapter (inventory management). If necessary, refer back to that chapter.

Hint 3: Remember to use cell references in all your formulas rather than using a rounded input value from a previous calculation.

Based on this information, what will be the new optimal order quantity for reels (using the reduced ordering cost)?

When using the reduced ordering cost, as compared to the original ordering cost, how many reels on average will Skullcandy hold in inventory (assuming they hold no safety stock)?

What will be the annual total combined savings to ordering costs and holding costs when using the reduced order cost, as compared to the original ordering cost?