Office One Super Store sells office furniture, equipment, supplies and business technology for small businesses and home offices. The company sells 5600 file cabinets per year, 60% of which are imported from Canada. All the imported file cabinets are purchased from a single supplier at a cost of $40 each. The shop calculates annual holding cost as 20% of unit cost per year. The set up cost for placing an order is estimated to be $350.
a) Determine the optimal number of file cabinets to order (EOQ) each time an order is placed, the time between placement of orders and the total annual cost incurred by the store for the imported cabinets.
b) If store has to order in multiples of 40, what order size should it choose? What is the percentage increase in the total annual cost from using this new order quantity compared to the original EOQ?
c) If the replenishment lead time is three weeks, what is the reorder point based on the level of on-hand inventory?
d) The current reorder policy is to buy file cabinets only once every four months. What is the additional total annual cost incurred by this policy compared to using the original EOQ?