Discuss the nature of the costs-affect inventory size

Assignment:

Section 1

Activity has the purpose of helping students summarize fixed-order quantity and fixed-time period models, including ways to determine safety stock when there is variability in demand. Work the following situation (it will require your study of the textbook and some internet researching.)

"José runs a mail-order business for gym equipment from his house in Dorado. Annual demand for the Puerto Flexers (the best seller) is 25,000 in the US. Assume that the year has 360 days. He sells each product for \$350, earning a markup of 20%, including shipping and handling to the US. The annual holding cost per unit is \$5.50 and the cost to process an order is \$25. It takes ten days to completely process an order. (Write down any assumption that you have to make.)

a. What are the EOQ and Total Cost of this situation?

b. How long does a cycle time last?

c. If José has space for 565 products, can all be stored in his facilities?

d. If José expect demand to rise by 15% next year, does he has to make any arrangements?

Section  2 -

Activity has the purpose of helping students describe what the economic order quantity is and how to calculate it.

1. Discuss the nature of the costs that affect inventory size.

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