20. Through its online accessory store, Gateway sells its own products, as well as ones made by other companies.

One of these products is the Viewsonic VP150 LCD monitor:

a. (*) What is the economic order quantity for the monitor?
Calculate annual ordering costs and holding costs (ignoring safety stock) for the EOQ.

b. (**) What is the reorder point for the monitor?
How much of the reorder point consists of safety stock?

c. (**) Suppose Gateway decides to order 64 monitors at a time. What would its yearly ordering and holding costs (ignoring safety stock) for the monitor be?

d. (**) Because computer technologies become obsolete so quickly, Gateway is thinking about raising holding costs from 40% of item cost to some higher percentage.
What will be the impact on the economic order quantity for monitors? Explain why.
For Parts e and

f, use the following formula to consider the impact of safety stock (SS) on average inventory levels and annual holding costs:

e. (***) What is the annual cost of holding inventory, including the safety stock? How much of this cost is due to the safety stock?

f. (***) Suppose Gateway is able to cut the lead time to a constant one week. What would the new safety stock level be? How much would this reduce annual holding costs?

Transcribed Image Text:

Estimated annual demand: Cost: Lead time: Standard deviation of weekly demand: Standard deviation of lead time: Holding cost per unit per year: Ordering cost: Desired service level: 15,376 monitors (50 weeks per year) $640 per monitor 2 weeks 16 monitors 0.3 weeks 40% of item cost $25 per order 95% (z = 1.65)