Purchase Solution

Economic Order Quantity and Inventory Costs

Not what you're looking for?

Ask Custom Question

13-25. The office manager for the Metro Life Insurance Company orders letterhead stationery from an office products firm in boxes of 500 sheets. The company uses 6500 boxes per year. Annual carrying costs are $3 per box, and ordering costs are $28. The following discount price schedule is provided by the office supply company:
Order Quantity (boxes) Price per Box
200-999 $16
1000-2999 14
3000-5999 13
6000+ 12
Determine the optimal order quantity and the total annual inventory cost. (Russell 585)

Reference:
Russell, Roberta S. Operations Management: Creating Value Along the Supply Chain, 7th Edition. John Wiley & Sons,

Attachments
Purchase this Solution
Solution Summary

This solution provides calculations of economic order quantity as well as total inventory costs in case of discount on unit purchase price as per increasing volume

Solution Preview

The problem is a specialized case of incremental quantity discount case where the purchase price per unit declines as per increasing order quantity.
As per the graph shown below, with the total cost represented on the y-axis and the order quantity (no. of boxes) represented on the x-axis, the total cost, given an order size of Q boxes per order is represented by
TC = 6,500 * C + (6500/ Q) * 28 + 3 * (Q/2), where C is the purchase price per box
For 200 <= Q <= 999; C = $16 hence TC = 104,000 + (6500/ Q) * 28 + 3 * (Q/2)
For 1000 <= Q <= 2999; C = $14 hence TC = 91,000 + (6500/ ...

Purchase this Solution
Free BrainMass Quizzes
Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Operations Management

This quiz tests a student's knowledge about Operations Management

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

View More Free Quizzes
Related BrainMass Solutions

  • Economic Order Quantity Technique

    What are some different companies that could benefit from using this type of inventory management and why? The economic order quantity is the amount of inventory that reduces the inventory holding costs and ordering costs to its minimum.

  • EOQ - Economic (Optimum) Ordering Quantity

    Each bag costs Green Thumb $4, inventory carrying costs are 20 percent, and the cost of placing an order with the firm's supplier is $25. A) What is the economic ordering quantity? B) What is the maximum inventory of fertilizer?

  • Calculating the EOQ and various inventory costs

    Solution describes the steps to calculate inventory costs and EOQ in the given case.

  • EOQ, Reorder point and average inventory

    Carrying costs of the inventory are 15% of unit costs. Determine the economic order quantity, reorder point, and the average inventory for this bakery. Attached is the solution in full detail (see attachment).

  • Economic Order Quantity and Inventory Control System

    134466 Economic Order Quantity and Inventory Control System Fisk Corporation is trying to improve its inventory control system and has installed an on-line computer at its retail stores.

  • Import Beer product line: Method for optimal ordering quantities

    Optimal order quantity Optimal order quantity determines how many units are to be ordered and the method to do so is to use the economic order quantity model.

  • Reducing Total Inventory Costs Using Economic Order Quantity

    The expert examines reducing total inventory costs using economic order quantity.

  • Important information about Economic Order Quantity (EOQ)

    Economic order Quantity (EOQ) = 200 cartons The solution calculates Orders per month, Total orders cost, Average inventory, Total Carrying costs and Total carrying costs for different order sizes to arrive at Economic Order Quantity (EOQ) are examined

  • Economic Order Quantity

    117922 Economic Order Quantity Quarter ABC Corp. uses 20,000 half inch PVC tubes during a calendar quarter. Ordering costs are $180 per order and carrying costs are $6 per tube per quarter. The economic order quantity is?

  • Inventory Management and Demand

    518085 Inventory Management and Demand Company A's demand is uniform throughout the year and totals 18,000 units per year. Ordering costs total $38 per order. The annual holding cost rate is 26% of the value of the inventory.

View More Related Solutions