Problem 7-9 (Algo)

Ergonomics Incorporated sells ergonomically designed office chairs. The company has the following information:

Average demand = 27 units per day

Average lead time = 34 days

Item unit cost = $54 for orders of less than 240 units

Item unit cost = $51 for orders of 240 units or more

Ordering cost = $29

Inventory carrying cost = 25%

The business year is 250 days.

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

What will the firms average inventory be under each alternative?

What will be the annual ordering and holding costs for each alternative?