Ergonomics Inc. sells ergonomically designed office chairs. The company has the following information:
Average demand = 54 units per day
Average lead time = 30 days
Item unit cost = $60 for orders of less than 250 units
Item unit cost = $58 for orders of 250 units or more
Ordering cost = $23
Inventory carrying cost = 20%
The business year is 260 days.
Assume there is no uncertainty at all about the demand or the lead time.
1. Calculate EOQ if unit cost is $60 and $58.
Unit cost at 60?
Unit cost at 58?
2. Calculate annual ordering costs for each alternative?
Unit cost at 60?
Unit cost at 58?
3. Calculate annual inventory carrying costs for each alternative?
Unit cost at 60?
Unit cost at 58?
4. Calculate annual product costs for each alternative?
Unit cost at 60?
Unit cost at 58?
5. What will be the total costs for each alternative?
Unit cost at 60?
Unit cost at 58?
6. How many chairs should the firm order each time?
Order quantity of chairs?
7. How much the firm can save by placing the order?