Question

Demand for phones at Amazon is 5,000 per month. The annual holding cost at Amazon is 30% and the company incurs a fixed cost of $600 for each order placed. The supplier offers an all unit quantity discount of 10% for orders of 500 units or more. Calculate the Economic Order Quantity (EOQ) for this scenario and determine the reorder point.

Answer 1

To find the Economic Order Quantity (EOQ) and reorder point for Amazon, we need to apply the EOQ formula and factor in the lead time. However, without the unit cost or lead time details, we cannot calculate the exact figures.

Step-by-step explanation:

To calculate the Economic Order Quantity (EOQ) for Amazon taking into account the quantity discount, we need to apply the classic EOQ formula incorporating the discount and the holding cost percentage. Since the demand is 5,000 phones per month, the annual demand would be 60,000 phones. The annual holding cost per unit is 30% of the unit cost, but without the cost per unit, we would be unable to calculate the holding cost per unit and thus the EOQ. Assuming we had the cost per unit, the EOQ formula would be:

EOQ = √((2DS)/H)

where D is the annual demand, S is the ordering cost, and H is the holding cost per unit per year. Additionally, the reorder point is calculated based on the lead time and daily demand. If Amazon's lead time to receive an order is L days, the reorder point (ROP) would be:

ROP = Daily Demand * Lead Time

Without further specifics on the unit cost and lead time, we cannot provide the numerical answer for EOQ and ROP.