Economic Order Quantity Out Camping is a manufacturer of supplies and has several divisions, one of which is the tent division that produces the deluxe tent Away From Home. Fourteen thousand of these tents are made each year. This model of tent incorporates two zipping doors in each model. Zippers for these doors are purchased from Zippy Zippers. Out Camping began this year with 500 zippers in inventory, but is now adopting an EOQ approach to inventory. A review of last year’s records reveals the following information concerning each order placed with Zippy Zippers: variable labor—$12;

variable supplies—$1; fixed computer costs—

$4; fixed office expenses—$2; fixed mailing expenses—$2; and fixed supplies—$1. No differences are expected this year. Last year, the cost of carrying one zipper in inventory for the entire year was $1, but Out Camping has recently negotiated a new lease on its warehouse, and the cost of carrying each zipper is now expected to increase by 25 cents. Out Camping also found that it took seven days from the time an order was sent to Zippy until the zippers were received.

Required:

a. Compute EOQ.

b. Compute ROP. Presume Out Camping has a desire to reduce its ending inventory to one-half of this year’s beginning amount and that the company produces the Away From Home model 140 days each year.