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Inventory management problem: EOQ, ROP, SS

Alexis Co. uses 800 units of a product per year on a continuous basis. The product has a fixed cost of $50 per order, and its carrying cost is $2 per unit per year. It takes 5 days to receive a shipment after an order is placed, and the firm wishes to hold 10 days' usage in inventory as a safety stock.

a) calculate the EOQ

b) determine the average level of inventory (365-day year to calculate daily usage)

c) determine the reorder point

d) indicate which of the following variables change if the firm does not hold the safety stock: (1) order cost, (2) carrying cost, (3) total inventory cost, (4) reorder point, (5) economic order quantity. Explain?

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Solution Summary

This posting contains solution to following problem on Inventory management containing calculations for EOQ, Safety stock and ROP.