Wholesale Building Supply Changes in Credit Terms
623445
chap_7_problem_3_template.xlsxBuild a Model
| Chapter 7. Student Ch 7-3 Build a Model | ||||||||||||||
| The following inventory data have been established for the Alder Corporation: | ||||||||||||||
| (1) Orders must be placed in multiples of 100 units. | ||||||||||||||
| (2) Annual sales are 338,000 units. | ||||||||||||||
| (3) The purchase price per unit is $3. | ||||||||||||||
| (4) Carrying cost is 20 percent of the purchase price of goods. | ||||||||||||||
| (5) Cost per order placed is $24. | ||||||||||||||
| (6) Desired safety stock is 14,000 units; this amount is on hand initially. | ||||||||||||||
| (7) Two weeks are required for delivery. | ||||||||||||||
| Note: The red arrows in the upper right hand of a cell indicates a helpful comment. Click on the cell to see the comment. | ||||||||||||||
| INPUT DATA: | ||||||||||||||
| Fixed order cost (F) | $24 | |||||||||||||
| Annual unit sales (S) | 338,000 | |||||||||||||
| Carrying cost (C) | 20% | |||||||||||||
| Purchase price (P) | $3 | |||||||||||||
| Desired safety stock | 14,000 | |||||||||||||
| Order multiple | 100 | |||||||||||||
| Weeks for delivery | 2 | |||||||||||||
| Ordering quantity (part d) | 4,000 | |||||||||||||
| Important note: Make your formulas refer to the cells in the input data section. | ||||||||||||||
| a. What is the EOQ? | ||||||||||||||
| EOQ = | ||||||||||||||
| b. How many orders should the firm place each year? | ||||||||||||||
| Optimal number of orders = | ||||||||||||||
| c. At what inventory level should a reorder take place? [Hint: Reorder point = Safety Stock + (Weeks to deliver x Weekly usage) - Goods in transit. | ||||||||||||||
| Weekly usage = | ||||||||||||||
| Days between orders = | ||||||||||||||
| Orders in transit = | ||||||||||||||
| Goods in transit = | ||||||||||||||
| Optimal reorder point = | ||||||||||||||
| d. Calculate the total costs of ordering and carrying inventories if the order quantity is: | ||||||||||||||
| d. (1) 4,000 units. | ||||||||||||||
| d. (2) 4,800 units. | ||||||||||||||
| d. (3) 6,000 units. | ||||||||||||||
| d. (4) The EOQ number of units. | ||||||||||||||
| number of units | Total Inventory Cost | |||||||||||||
| Tot inv. cost @ | 4,000 | |||||||||||||
| Tot inventory cost @ EOQ | ||||||||||||||
| e. What are the EOQ and total inventory costs if | ||||||||||||||
| e. (1) Sales increase to 500,000 units? | ||||||||||||||
| e. (2) Fixed order costs increase to $30 while sales remain at 338,000 units. | ||||||||||||||
| e. (3) Purchase price increases to $4? Leave sales and fixed costs at original values. | ||||||||||||||
| Refer to the formulas you developed in parts (a) through (d) and change the inputs in the input section. | ||||||||||||||
| EOQ | ||||||||||||||
| Tot inventory cost @ EOQ |
Phillip Daves: Refer to your answer in part (d). |
Phillip Daves: Optimal number of orders = Annual Sales/EOQ |
Phillip Daves: Total Cost = (CPQ/2) + (FS/Q) + CP(Safety Stock) |
Phillip Daves: Weekly usage = Annual sales / 52 |
Phillip Daves: Copy your formula from part (d), but refer to the EOQ as the number of units. |
Phillip Daves: Days between orders = 360/optimal number of orders. |
Phillip Daves: Orders in transit = (days to deliver)/(days between orders). Note: Days to deliver = 7 x weeks to deliver. |
Phillip Daves: Goods in transit = (orders in transit) x (order size) |
Phillip Daves: Optimal reorder point = Safety stock + (weeks to deliver x weekly usage) - goods in transit. |
Phillip Daves: Be sure to refer to the cells in the input data section. |
Phillip Daves: Refer to your answer in part (a). | |||
CP
FS
2
EOQ
=
CP
FS2
EOQ
