The following information was collected by the distribution manager
• R (annual demand) in units = 9,750
• V (value) per box = $62.50
• W (inventory carrying cost) = 23%
• A (order cost) = $75
• Y (in-transit carrying cost) = 19%
• tm (motor carrier) = 4 days
• ta ( air carrier) = 2 days
• Weight = 5 lbs per box
• Motor Carrier Rate = $0.40 per 50 lbs
• Air Carrier Rate = $0.75 per 50 lbs
• use 365 days per year
a. What is the economic order quantity? In pounds?
b. What is the total cost (NOT considering transportation - related costs) of the EOQ?
c. What is the total cost for using motor carrier transportation?
d. What is the total cost for using air carrier transportation?
e. Which alternative should GasBag use and why?
f. Discuss EOQ. What is it and why is it important?