Problem:
A company's total output for DVDs is 5,000 units (20 per day), and the cost per unit is $60. The total time between date order and date of receipt is 5 days. Associated with the shipment are shipment and procurement costs averaging $20 per order. Additional carrying costs (insurance, storage, handling, taxes etc) equal $6 per unit per year.
Question 1) Compute the optimal order quantity of DVD players
Question 2) Determine the appropriate reoder point (in units)
Question 3) Compute cost savings that the company will realize if it implements the optimal inventory procurement decision.
Question 4) Should the procurement costs be considered a linear function of the number of orders?
Solve the given numerical problem and illustrate step by step calculation.