Delta Industries Is Currently Experiencing Problems with Its Inventory of Hammer

question 95

Essay

Delta Industries is currently experiencing problems with its inventory of hammer handles.Its manager, Laura Engles currently orders the hammer handles in batches of 500.Six orders are placed during the year to meet the estimated sales demand of 3,000 units.Each order costs $75 and each unit costs $0.10 to carry.Ms.Engles maintains a safety stock of 50 hammer heads.Required:
a.What are Beta's total annual costs (TC)of inventory under its current ordering policy?
b.What is the Economic Order Quantity for Beta Industries?
c.What is the average inventory if Beta uses the EOQ calculated in part b)and it still maintains its 50 units of safety stock?
d.What is Beta's annual savings in inventory costs by using the EOQ and maintaining its safety stock?

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Definitions:

Optimal Consumption

The combination of goods and services that provides the highest level of satisfaction to an individual, given their income and the prices of those goods and services.

Prices Constant

An assumption in economic analysis that prices remain unchanged over a specific period, allowing for the examination of other variables' effects without price fluctuations.

Diminishing Marginal Rate

The principle that as the quantidade of a variable input increases, with all other inputs fixed, a point will be reached where the additions to output will begin to decrease.

Substitution

The economic principle describing how consumers or producers replace one good or service with another in response to changes in price or other factors.