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Optimal Order Quanity/ ROP

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A company distributes a printed guide for the approximate 22,000 visitors it has each year. Holding costs for the brochures are 10% of purchase cost - and it costs $30 to place an order with the printer (unless you order the largest discount category in which case the order cost drops to $25). . The printer has a discounted pricing structure for larger orders you purchase in bulk (as per the schedule below). The company is open 275 days per year and it takes 21 days to obtain an order once it's been placed.

Category Order Size Unit Cost
1 0 - 999 $4.50
2 1000 - 2499 $4.20
3 2500 - 4999 $3.30
4 5000 $3.00
a. You have determined that the calculated economic order quantities for categories 3 and 4 are NOT feasible. How many brochures should be printed at a time? I calculated first the Economic Order Quantity but I am not sure how to do next. EOQ= SQUARE ROOT OF 2DS/H

b What is the total expected annual inventory cost at the optimal order quantity?

c. What is the re-order point?

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Solution Summary

Optimal order quantity and ROP for printed guides is determined.

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