Garden Variety Flower shop uses 625 clay pots a month. The pots are purchased at $2 each. Annual carrying costs per pot are estimated to be 15 percent of cost, and ordering costs are $125 per order. The manager has been using an order size of 1,500 flower pots. There are 4 weeks in each month, 12 months a year.
a. What is the Economic order quantity (EOQ)?
b. What is the total cost associated with EOQ
c. If order lead-time is two weeks (i.e., 0.5 month) and the safety stock policy is that SS= 50 pots, what is the ROP?
d. If the shop remains using the order size of 1500, what is the total annual cost?
e. Following d., what additional annual cost is the shop incurring by staying with the order size of 1500? (as opposed to using EOQ)