Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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ABC Corporation resells one type of candle. It has 250 working days. Each day, it sells an average of 500 boxes but may
sometimes sell a maximum of 600 boxes. The supplier takes an average of 5 days to deliver the order. During busier times, the
supplier may take 7 days.
Based on ABC’s records, ordering cost average P400 per order. Storage cost per box average P5 per year. There is also an
opportunity cost of 1% per year for every peso invested in inventories. Each box of candles costs P450.
If ABC would continue its current inventory management policy, it would keep 10,000 boxes as safety stock and order ten-
days-worth of inventory.
(B) Economic Order Quantity
1. How much would the total inventory related (ordering plus carrying) costs be if the economic order quantity was
followed (excluding safety stock)?
(D) Cost-Benefit Analysis: If ABC maintains its current inventory policy for the year,
1. How much would the entity save it followed the reorder point and economic order quantity models?
2. How would you describe the entity’s current policy?
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