Victor sells a line of upscale evening dresses in his boutique. He charges $425 per dress, and sales average 35 dresses per week. Currently, Victor orders a 15-week supply at a time from the manufacturer. He pays $140 per dress, and it takes three weeks to receive each delivery. Victor estimates his administrative cost of placing each order at $375. He estimates his cost of inventory at 25% of the cost of each dress.
Using Victor's current ordering policy, determine the following:
- What is Victor's current total annual cost of ordering (annual set-up cost)?
- What is Victor's current total annual cost of carrying inventory (annual holding cost)?
- What is the average inventory?
- What is the ReOrder Point?
- What is the inventory turns for Victor's current policy?
Victor want to lower his inventory costs:
- How much should Victor order in each batch (EOQ)?
- What is Victor's new total annual cost of ordering (annual set-up cost)?
- What is Victor's new total annual cost of carrying inventory (annual holding cost)?
- What is the average inventory?
- What is the ReOrder Point?
- What is the inventory turns for the new policy?
Compare Victor's original ordering policy with the new one to minimize costs:
- What is the annual savings with the new policy?