(Typed in)

1 Calculate the economic order quantity (EOQ) 2 Use the formula given in item #3 and the information provided in item #4 of the handout and calculate the optimum number of cases necessary for each order 3 Show your calculations on the sheet. The square root sign covers both the numerator and the denominator 4 Answer the following question: Since this calculation is not always useful, particularly with the new technologies currently in use, explain what type of inventory control system would not find the EOQ of much use? Inventory Control E0Q-Economic Order Quantity 1. Determining the order processing cost: The total amount it costs the firm to place an order from beginning to end Operating expenses for the purchasing department Costs for follow-up Costs for record keeping Costs for the receiving department Costs for processing and paying the invoices Add up the yearly costs and divide them by the number of orders placed during the year 2. Calculating the inventory carrying costs: This is the total of all costs involved in carrying inventory. This figure is approximately 24% for most Costs of capital tied up in the inventory Costs of waste (obsolete and unusable merchandise) Depreciation costs Storage costs Insurance premiums Property taxes (ad valorem) Opportunity costs unit cost x inventory carrying cost 4. Example: An office supply store sells 6,000 cases of pens a year at a cost of $12.00 a case. Placing an order costs the store $60.00. The inventory carrying cost of the pens in the warehouse is 24% per year Calculate the EO