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