Economic order quantity for retailer. Fan Base (FB) operates a megastore featuring sports merchandise.
It uses an EOQ decision model to make inventory decisions. It is now considering inventory decisions for its Los Angeles Galaxy soccer jerseys product line. This is a highly popular item. Data for 2011 are as follows:
Expected annual demand for Galaxy jerseys 10,000
Ordering cost per purchase order $200
Carrying cost per year $7 per jersey
Each jersey costs FB $40 and sells for $80. The $7 carrying cost per jersey per year comprises the required return on investment of $4.80 (12% $40 purchase price) plus $2.20 in relevant insurance, handling, and theft-related costs. The purchasing lead time is 7 days. FB is open 365 days a year.
1. Calculate the EOQ. Required
2. Calculate the number of orders that will be placed each year.
3. Calculate the reorder poin