Question
A firm is trying to decide on an ordering strategy for a particular item. The item can be delivered in unlimited quantities; unloading times are
A firm is trying to decide on an ordering strategy for a particular item. The item can be delivered in unlimited quantities; unloading times are inconsequential. The firm uses 3000 units of the item per year. Each item has a purchase price of 3$. The firm has calculated that storage and insurance costs of inventory are 12% per year. The firm's cost of capital is 10% per year. Out-of-pocket paperwork costs associated with generating a purchase order total 10$ per order. The costs of writing a check for an order are 5$. Unloading costs are 12$. The items ordered are expected to arrive 7 days later the order is placed. Use a 360 day year. a. Calculate the optimum order quantity, the order point, and the total cost of the ordering strategy of the firm.
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