Clothes, Inc., has an average annual demand for red, medium polo shirts of 25,000 units. The cost...
Question:
Clothes, Inc., has an average annual demand for red, medium polo shirts of 25,000 units. The cost of placing an order is $80 and the cost of carrying one unit in inventory for one year is $25.
Required:
a. Use the economic-order-quantity model to determine the optimal order size.
b. Determine the reorder point assuming a lead time of 10 days and a work year of 250 days.
c. Determine the safety stock required to prevent stock-outs assuming the maximum lead time is 20 days and the maximum daily demand is 125 units.
Economic Order Quantity:
Economic order quantity help to optimize the inventory ordering and holding cost. This method is used to determine the unit of inventory a company must include minimizing the ordering cost and the expenses incurred to store it.
Answer and Explanation: 1
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{eq}Economic \ order \ quantity \ = \ \sqrt{\dfrac{2 \ \times \ Annual \ requirement \ \times \ Ordering \ costs}{Carrying \ cost \ per \...
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Inventory Management Techniques
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Chapter 19 / Lesson 8
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The amount of product that a company must keep in storage will depend on the inventory management process. Learn about inventory management techniques and discuss three major approaches: the ABC approach, the economic order quantity model, and derived-demand inventory.
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