You are currently working at Best Buy in the supply chain department. Your task is to oversee the purchase of a new 40” HD TV from Samsung. You worked hard at this role and know that you can come up with a number to meet your managers request for a “total inventory cost” based on the best EOQ lot size. Best Buy has had some capital issues lately, and their current rate for inventory holding is high at 20%. These TV’s each have a cost of $500. Over the course of the year you expect that 50,000 total TV’s are required and that demand is constant. Each time you order it is $4,000. First, calculate the EOQ for your order. Second, based on the EOQ calculate the total inventory cost.
Your manager is concerned that the cost of ordering is way too high based on the results in question 3. The manager would like to know how much the company would save based on using a period order quantity of only once per month. Calculate the difference in set-up costs associated with a 1 time per a 4-week order for the 12-week period. (Note: You will need to remember to subtract the new cost from the old cost to come up with the difference)