Question 4

Freezer Corporation is a manufacturer of cooling products. It purchases 14,400 units of a particular component (CK55) each year at a cost of $60 per unit. Freezer Corporation requires a 12% annual rate of return on investment. In addition, relevant carrying costs for insurance, material-handling, and breakage are $0.40 per unit per quarter, whereas warehousing rental cost is $12,000 per month. Relevant costs per purchase order are $144.00. Purchasing managers salary is $80,000 per year.

Required:

1. Calculate Freezers EOQ for CK55.
2. Calculate Freezers total ordering and carrying costs.
3. Assume that demand is uniform throughout the year and is known with certainty. The purchasing time is half a month. Calculate the reorder point for CK55.