Novelty Medical Pacemakers, Inc. is experiencing some inventory control problems. The manager, Wanda Mollick, currently orders 10,000 units six times each year to handle annual demand of 60,000 units. Each order costs $12 and each unit costs $1.20 to carry. Ms. Mollick maintains a safety stock of 300 units. (PLEASE SHOW YOU WORK).
a) What is Novelty Medical Pacemakers' current total annual inventory cost? (Hint: use current data to answer this question. Order size= 10,000 units, # of orders per year= 6 orders, annual sales in units= 60,000 units, order cost= $12 per order, carrying cost per unit= $1.20. Note that average inventory= [Order size / 2] + Safety stock).
b) Calculate the economic ordering quantity (EOQ).
c) What is average inventory under EOQ if Ms. Mollick maintains a safety stock of 300 units?
d) Calculate total annual inventory cost under EOQ.
e) How does total annual inventory cost under EOQ (see part d above) compare to her current inventory cost (see part a)?