Item X is a standard item stocked in a company’s inventory of component parts. Each year the firm uses about 2,000 of item X. Holding costs, which include insurance and cost of capital, amount to $5 per unit of average inventory. Every time an order is placed for more of item X, the cost is $10.
a. What is the EOQ? (round to nearest whole number)
b. How many times per year would the store reorder if EOQ units are ordered each time? (round to nearest whole number)
c. What is the length of an order cycle if EOQ units are ordered each time? (calculate in terms of year (to 3 decimal places) and then express in terms of workdays by multiplying by 365 (round to nearest workday))
d. What is the total annual inventory control cost if EOQ units are ordered each time? (round to the nearest dollar)
e. If ordering costs were to increase by 25% per order, by what percentage would the EOQ change? (round to the nearest percent)