A Store Has Collected the Following Information on One of Its

question 75

Essay

A store has collected the following information on one of its products:
Demand = 5,000 units/year
Ordering costs = $12/order
Holding costs = $4/unit/year
Lead-time = 5 days weeks
Unit cost = $748/unit
Number of weeks per year = 50 weeks
a. The firm currently orders 500 units per order. What is the total cost of ordering and holding these goods under this system?
b. Determine their economic order quantity and cost of ordering and holding goods using the EOQ.
c. Form the ratio of the order quantities under the old policy and EOQ. Form the ratio of the EOQ to the old order quantity. Then form the ratio of their total system costs under the two ordering policies. Average these two ratios and compare this number with the ratio of the old total cost with the total cost under an EOQ policy.
d. How do they compare?

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Definitions:

No-Trade Situation

A scenario in which countries or entities do not engage in international trade, often due to policies or barriers.

Domestic Price

The price of goods or services within a country's borders, distinct from international or foreign prices.

World Price

The global market price of a good or service, influenced by worldwide demand and supply.

Tariff

A tax imposed by a government on goods and services imported from other countries, often used to protect domestic industries from foreign competition.