Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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CarCity is a big retailer for car parts and accessories. The store stocks different types and sizes of car tire. One of the best selling tires is the Tiger Model R125, which is currently purchased from a factory in Indonesia. An analysis of the purchasing operation shows that approximately 3 labor hours are required to process a purchase order, regardless of the quantity purchased. Salaries in the purchasing Department average OMR 12 per hour, including employee benefits. In addition, a detailed analysis of 15 previous purchase orders showed that OMR 132 was spent on telephone, paper, and other consumables directly related to the ordering process . Shipping cost from Indonesia is OMR 230 for a container. A container has a capacity of 800 tires. The lead time for shipments from Indonesia is 15 days. Finally, CarCity’s financial analysts established a holding cost of 20% for this type of tire.
The annual demand for the R125 tire is constant at a rate of 8400 units. The store purchases the tires from the Indonesian factory at a cost of 12 OMR per unit. The current practice at CarCity is to place one re-stock order each month. The store operates 350 days per year.
Part A
1. What is the ordering cost?
2. What is the current annual total inventory cost under the company’s current policy?
3. Determine the optimal order quantity.
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