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EOQ, ROP, Average Inventory, Annual Ordering Cost

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Problem 6-20
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Barbara Bright 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 an annual demand of 4,000 units. The cost of each valve is $90, and the inventory carrying cost is estimated to be 10% of the cost of each valve. Barbara has made a study of the costs 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 2 weeks for an order to arrive from the supplier, and during this time the demand per week for West valves is approximately 80.

a. What is the EOQ?
b. What is the ROP?
c. What is the average inventory? What is the annual holding cost?
d. How many orders per year would be placed? What is the annual ordering cost?

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Solution contains calculations of EOQ, ROP, Average Inventory, Annual Ordering Cost.

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