The Denim World sells fabrics to a wide range of industrial and consumer users. One of the products it carries is denim cloth, used in the manufacture of jeans and carrying bags. The supplier for the denim cloth pays all incoming freight. No incoming inspection of the denim is necessary because the supplier has a track record of delivering high-quality merchandise. The purchasing officer of the Denim World has collected the following information:
- Annual demand for denim cloth: 26,400 yards
- Ordering cost per purchase order: $165
- Carrying cost per year: 20% of purchase costs
- Safety-stock requirements: None
- Cost of denim cloth: $9 per yard
The purchasing lead time is 2 weeks. The Denim World is open 250 days a year (50 weeks for 5 days a week).
1) Calculate the EOQ (economic order quantity) for denim cloth.
2) Calculate the number of orders that will be placed each year.
3) Calculate the reorder point for denim cloth.