Problem:
Douglas Boats is a supplier of boating equipment for the states of Oregon and Washington. It sells 5,000 White Marine WM-4 diesel engines every year. These engines are shipped to Douglas in a shipping container of 100 cubic feet, and Douglas Boats keeps the warehouse full of these WM-4 motors. The warehouse can hold 5,000 cubic feet of boating supplies. Douglas estimates that cost per order is $10 and the carrying cost is estimated to be $10 per motor per year. Douglas Boats is considering the possibility of expanding the warehouse for WM-4 motors.
1) What is the annual inventory carrying cost?
2) What is the annual cost of ordering?
3) What is the total cost, including purchasing cost?
4) What is the largest number of motors they will need to store on any given day?
5) What is the smallest number of motors they will need to store on any given day?
6) Assume demand is constant throughout the year. How much should Douglas Boats expand to handle their inventory shipments?
7) Do you think they should expand?
8) How much would it be worth for the company to make the expansion?