1. An auto parts supplier sells Flow-Thru oil filters to car dealers and auto mechanics. The annual demand is approximately 1,200 filters. The supplier pays $4.25 for each filter and estimates that the annual holding cost per filter is 30 percent of the filter's value. It costs approximately $20 to place an order (managerial and clerical costs). The supplier currently orders 100 filters once a month.
a. Determine the annual ordering/setup cost, annual holding cost, and total annual inventory costs for the current order quantity of 100 filters.
b. Determine the optimal order quantity Q* using the EOQ model.
c. How many orders will be placed per year using the optimal order quantity?
d. Determine the annual ordering, holding, and total inventory costs for the optimal order quantity found in part b. How has ordering cost changed? Holding cost? Total inventory cost?
e. The supplier is open 300 days per year. It usually takes about 5 days to receive an order from the factory. Calculate the reorder point for the filters.