Question 3

Blue Ltd is expecting demand for its product this year to be 45,000 units. It has calculated its ordering cost to be $300 per order and carrying cost per year to be $60 per unit. The purchase lead time is 6 weeks. Assume 52 weeks per year.

PART A

a)Calculate the economic order quantity

b)Calculate the number of orders to be placed each year

c)Calculate the reorder point

PART B:

a)If the company experiences an increase in its ordering cost to $335 per order, calculate the new economic order quantity. Explain why it has changed.

b)If the company experiences a decrease in the carrying cost per year to $40 per unit, calculate the new economic order quantity. Assume order cost goes back to original $300 per order. Explain why it has changed.