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Clothes, Inc., has an average annual demand

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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 stockouts assuming the maximum lead time is 20 days and the maximum daily demand is 125 units.

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Solution Summary

The expert examines Clothes, Inc. average annual demand.

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D= 25,000
H = $25 per unit
C= $80 per order

a. EOQ = SQRT (2 X D X C / H)

=SQRT (25,000 X 2 X 80 / 25)

= 400 Units

b. ...

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