Inventory Management
For this written assignment, a flower shop uses 800 clay pots a month. The pots are purchased at $2 each. Annual carrying costs are estimated at $0.60 per pot per year and ordering costs are $20 per order. The manager has been currently using an order size of 1600 flower pots per order.
Please show all work. Attach your answers in a Word document
• What additional cost is the shop incurring by using this current order size rather than the economic order quantity?
• Other than potential cost savings, what benefit(s) would using the optimal order quantity yield?
• What is the number of orders per year if the manager uses the current order quantity of 1600?
• What is the number of orders per year if the manager uses the Economic Order Quantity?
• What is the maximum number of flower pots that are held in inventory in a given ordering cycle?
• How long will each order last (in months) if the manager uses the Economic Order Quantity?
• Assume that the lead time for the pots is 1 month. What is the Reorder Point? Verbally, interpret the meaning of this Reorder Point.