Be sure to always round inventory quantities (Q, R, SS, Imax) values up to the next integer for the final answers. All other values should be calculated based on the standard formulas without rounding them to integers and should be entered with one decimal place (e.g. average inventory, average number of orders, etc.).
Chris Froome is a purchasing agent for a firm that sell components for high performance bicycles. One of the most popular components is the TDF bicycle frame which has an annual demand of 2,800 units. The cost of each frame is $570 and the inventory carrying cost is estimated to be 17% of the cost of each frame. Chris has made a study of the costs involved in placing an order for any of the frames the firm stocks, and he has concluded that the average ordering cost of $81.50 per order. Furthermore, it takes about one week for an order to arrive from the supplier, and the TDF operates 50 weeks per year.
a) What is the annual ordering cost?
b) What is the annual holding cost?
c) How many orders (on average) would be placed per year?
d) What is the average inventory?
e) What is the reorder point? f) What is the EOQ?