Question

ABC Retail stocks and sells its own brand of personal computers. It costs the firm $600 each time it places an order with a manufacturer for computers. The cost of carrying one computer in inventory for one year is $225. The store manager estimates the total annual demand for computers will be 2,000 units with a constant demand rate throughout the year. ABCs policy is never to have stockout of the store brand TV. The store is open for business seven days per week from 9 AM to 6 PM. Determine the time between orders TBO (in working days)

Answer 1

18 days

Step-by-step explanation:

first we must determine the economic order quantity:

EOQ = √[(2 x S x D) / H]

• S = order cost = $600
• D = annual demand = 2,000
• H = holding cost = $225

EOQ = √[(2 x 600 x 2,000) / 225] = 103.28 units ≈ 103 units

total number of orders = 2,000 / 103 = 19.4175

Time between orders = working days per year / total number of orders = 365 / 19.4175 = 18.7975 days

since the company's policy is to never run out of stock, then we should round down the time between orders to 18 days. If we round up to 19 days (which is much closer actually), the risk of an stock out exists.