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 percent of their purchase cost. He also estimates that the administrative cost associated with placing each order is $75.
a) Tim currently is using the policy of ordering 5 Power model computers at a time, where each order is timed to have the shipment arrive just about when the inventory of these computersis being depleted. Use the Solver version of the Excel template for the basic EOQ model to determine the various annual costs being incurred with this policy.