Comfort Inc. sells ergonomically designed office chairs. The company has the following information:

Average demand = 20 chairs per day

Average supplier lead time = 3 days

Item unit cost = $50/chair

Ordering cost = $25/order

Annual inventory holding cost = 25% of inventory value

The business year is 250 days

a. How many chairs should the firm order each time? Assume there is no uncertainty at all about the demand or the lead time.

b. What will be the total annual cycle-inventory cost and its breakdown of costs?

c. What will be the firms average cycle inventory?

d. What will be the annual inventory turnover rate (using unit sales and unit inventory)?

e. Explain the relationship (tradeoff) between inventory holding costs and ordering costs in the economic order quantity. How does EOQ change with changes in the variables in the formula i.e. demand, ordering cost, inventory holding cost?

Important formulas and graphs:

Total annual cycle-inventory cost, C = holding costs + ordering costs

Holding costs = average cycle inventory x unit holding cost

Annual unit holding cost = unit cost x annual holding cost rate

Ordering costs = # of orders per year x ordering cost per order

C=2Q(H)+QD(S)Q=orderquantity(lotsize)annualdemandH=annualunitholdingcostS=orderingcostperorder D=AnnualDemandS=OrderingcostH=AnnualunitholdingcostEOQ=H2DS