Question

JL.83 Skullcandy makes a variety of earbuds and earphones that are popular among college students. Many of their products use a standard thin black cable which is purchased from a local supplier in 800-foot reels. In recent months the company has been implementing JIT and Lean principles in order to reduce costs and improve quality. One such initiative has led to a VMI (vendor managed inventory) agreement with its cable supplier, thus reducing Skullcandy's ordering costs from $29.22 to $3.80. Annual demand is 3,800,000 feet. Annual holding costs are $1.90 per 800-foot reel.

Based on this information, what will be the new optimal order quantity for reels (using the reduced ordering cost)? (Display your answer to the nearest whole number.)

Answer 1

The new optimal order quantity for reels using the reduced ordering cost is approximately 4,721 feet.

Step-by-step explanation:

To find the new optimal order quantity for reels, we need to calculate the economic order quantity (EOQ) using the reduced ordering cost.

The EOQ formula is:

EOQ = √((2 * Demand * Ordering Cost) / Holding Cost)

Plugging in the given values:

Demand = 3,800,000 feet

Ordering Cost = $3.80

Holding Cost = $1.90 per 800-foot reel

Solving the formula, we get:

EOQ = √((2 * 3,800,000 * 3.80) / (1.90)) = 4,720.58 feet

Therefore, the new optimal order quantity for reels is approximately 4,721 feet.