The Robney Company is a restaurant supplier that sells a number of products to various restaurants in the area. One of their products is a special meat cutter with a disposable blade.

The blades are sold in packages of twelve for \(\$ 20.00\) per package. After a number of years, it has been determined that the demand for the replacement blades has a constant rate of 2,000 packages per month. The packages cost the Robney Company \(\$ 10.00\) each from the manufacturer and require a three-day lead time from date of order to date of delivery. The ordering cost is \(\$ 1.20\) per order and the carrying cost is \(10 \%\) per annum.

Robney is going to use the economic order quantity formula:

Required:

a. Calculate:
1. The economic order quantity.
2. The number of orders needed per year.
3. The total cost of buying and carrying blades for the year.

b. Assuming there is no reserve (e.g., safety stock) and that the present inventory level is 200 packages, when should the next order be placed? (Use 360 days equal one year.)

c. Discuss the problems that most firms would have in attempting to apply this formula to their inventory problems.

Transcribed Image Text:

EOQ= 2(Annual Requirements) (Cost Per Order) (Price Per Unit) (Carrying Cost)