Customers at furniture store demand an average of 6,000 bookcases per year. Each time an order is placed, an ordering cost of $300 is incurred. The annual holding cost for a single desk is 25% of the $200 cost of a bookcase. Assume that the lead time to receive an order is one week. a) Each time an order is placed, how many bookcases should be ordered? b) What is the cycle time, T? c) How many orders should be placed each year? d) Determine the total annual costs of meeting the customers' demands for bookcases.
Customers at furniture store demand an average of 6,000 bookcases per year. Each time an order is placed, an ordering cost of $300 is incurred. The annual holding cost for a single desk is 25% of the $200 cost of a bookcase. Assume that the lead time to receive an order is one week. a) Each time an order is placed, how many bookcases should be ordered? b) What is the cycle time, T? c) How many orders should be placed each year? d) Determine the total annual costs of meeting the customers' demands for bookcases.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Step 1
The economic order quantity is the best order quantity for a corporation to purchase in order to reduce inventory costs such as holding charges, shortage costs, and order fees (EOQ).
The following is the EOQ formula:
Facts of the Question :
- Average demand of bookcases per year = 6,000 = (D)
- Cost of bookcase = $200
- Ordering Cost = $300 = (S)
- Annual holding cost for a single desk = 25% * $200 = $50 =(H)
- Lead time = 1 week = 7 days = 168 minutes
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