A firm wishes to minimize annual inventory costs. The firm uses the EOQ model to determine the
Question:
A firm wishes to minimize annual inventory costs. The firm uses the EOQ model to determine the cost-minimizing order quantity and the reorder point.
Annual demand, units | 22,100 |
Item cost, $ per unit | 3.2 |
Ordering cost, $ per unit | 12 |
Holding cost, annual rate | 0.10 |
Operating days per year | 365 |
Lead time, days | 6 |
The firm will receive a 20 percent reduction in the cost of the item (lowered to $3.20 per unit) if the order quantity is at least 2,000 units. Should the firm accept the offer?
1) What is the annual inventory cost? (Round your answer to 2 decimal places).
2) What is the reorder point? (Round your answer to 2 decimal places).
3) Comparing your answer to Problem 1, should the firm accept the offer?
Managerial accounting
ISBN: 978-0471467854
1st edition
Authors: ramji balakrishnan, k. s i varamakrishnan, Geoffrey b. sprin