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4 (16 marks) Orchard Company has been ordering 125 units of an inventory item, ABC, based on the recommendation of one of its salespersons who
4 (16 marks) Orchard Company has been ordering 125 units of an inventory item, ABC, based on the recommendation of one of its salespersons who calls on the company monthly. A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity method and it supporting decision elements to manage inventory ABC. She has gathered the following information: Required: Annual demand in units Days used per year Lead time, in days Ordering costs Annual unit carrying costs 250 250 10 $100 $20 a) Apply the EOQ formula to determine the optimal order quantity for ABC. (4 marks) b) Determine the average inventory, orders per year, average daily demand and re- order point. (4 marks) c) Calculate the annual ordering costs and annual carrying costs. (4 marks) d) Is the EOQ model an effective method of managing the costs associated with goods for sale? Explain. (4 marks)
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