Effect of different order quantities on ordering costs and carrying costs, EOQ. Koala @

Blue, a retailer of bed and bath linen, sells 234,000 packages of Mona Lisa designer sheets —_ _Jotal relevant costs, each year. Koala Blue incurs an ordering cost of $81 per purchase order placed with Mona _gcenario 1, $26,325 Lisa Enterprises and an annual carrying cost of $11.70 per package. Liv Carrol, purchasing manageart Koala Blue, seeks your help: She wants to understand how ordering and carrying %

costs vary with order quantity.

REQUIRED , 1. Complete the preceding table for Liv Carrol. What is the EOQ? Comment on your results.
2. Mona Lisa is about to introduce a Web-based ordering system for its customers. Liv Carrol estimates that Koala Blue’s ordering costs will be reduced to $49 per purchase order. Calculate the new EOQ and the new annual relevant costs of ordering and carrying inventory.
3. Liv Carrol estimates that Koala Blue will incur a cost of $2,000 to train its two purchasing assistants to use the new Mona Lisa system. Help Liv Carrol present a case to upper management showing that Koala Blue will be able to recoup its training costs within the first year of adoption.
LO1

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Scenario Annual demand (packages) Cost per purchase order Carrying cost per package per year Quantity (packages) per purchase order Number of purchase orders per year Annual relevant ordering costs 1 2 3 4 5 234,000 234,000 234,000 234,000 234,000 $ 81 $ 81 $ 81 $ 81 $ 81 $ 11.70 $ 11.70 $ 11.70 $ 11.70 $ 11.70 900 1,500 1,800 2,100 2,700