Problem
Tim Madsen is the purchasing agent for Computer Center, a large discount computer store. He has recently added the hottest new computer, the Power model, to the store's stock of goods. Sales of this model now are running at about 13 per week. Tim purchases these computers directly from the manufacturer at a unit cost of $3,000, where each shipment takes half a week to arrive. Tim routinely uses the basic EOQ model to determine the store's inventory policy for each of its more important products. For this purpose, he estimates that the annual cost of holding items in inventory is 20% of their purchase cost (h=0.2*3000). He also estimates that the administrative cost associated with placing each order is $75.
Use basic EOQ model to find the optimal order quantity. Note that a good approach is to bring all values to annual amounts. There are 52 weeks in a year.
How much extra money would it be wasted per year if they order 5 computers at a time instead of the optimal amount obtained in the previous question?
Using the optimal quantity, how frequently will orders be placed?