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EOP and the ROP and the average inventory

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Satou Saitou is the purchasing agent for West Valve Company. West Valve sells industrial valves and fluid control devices. one of the most popular valves is the western, which has a annual demand of 4000 units the cost of each valve is $90 and the inventory carrying cost is estimated to be 10% of the cost of each valve. satou has made a study of the cost involved in placing an order for any of the valves that west valve stocks, and she has concluded that the average ordering cost is $25 per order. Furthermore, it takes about two weeks for an order to arrive from the supplier and during this time the demand per week for west valves is approximately 80.

What is the EOQ?
What is the ROP?
what is the average inventory? What is the annual holding cost?
How many orders per year would be placed? What is the annual ordering cost?

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Annual Demand = 4000 units

Cost/Valve = $90

Carrying Cost = 10% of $90 = $9

Ordering Cost = $25

Lead Time = 2 weeks

Demand per week during lead ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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