US Qui Question 1- Inventory Management (LO3) Simeon runs a business that imports tables from China for sale in the UK. The supplier sells these to Simeon in batches of 1,000 units. Historically sales demand has been stable and relatively even throughout the year, at a rate of 2,500 units per month (2018 to 2020). In the period January to June 2021 however this increased to 3,000 per month, and they have run out of stock every month as a result. They have estimated that each stock out has cost them £1,000 each in lost business. Simeon has had this problem before in 2018 (6 stock outs) and 2019 (3 stock outs) but in 2020 he had fixed the problem and achieved no stock out events. Each batch, including shipping and taxes costs £2,500. The cost of placing and processing each order, regardless of quantity, is £100. Records show the following average stock holdings and associated costs: 2018 500 units £1,200 2019 750 units £1,700 2020 1,250 units £2,700 Required: Required: If the increased demand seen so far in 2021 continues, what a) is the the optimum order size you would recommend to Simeon?
US Qui Question 1- Inventory Management (LO3) Simeon runs a business that imports tables from China for sale in the UK. The supplier sells these to Simeon in batches of 1,000 units. Historically sales demand has been stable and relatively even throughout the year, at a rate of 2,500 units per month (2018 to 2020). In the period January to June 2021 however this increased to 3,000 per month, and they have run out of stock every month as a result. They have estimated that each stock out has cost them £1,000 each in lost business. Simeon has had this problem before in 2018 (6 stock outs) and 2019 (3 stock outs) but in 2020 he had fixed the problem and achieved no stock out events. Each batch, including shipping and taxes costs £2,500. The cost of placing and processing each order, regardless of quantity, is £100. Records show the following average stock holdings and associated costs: 2018 500 units £1,200 2019 750 units £1,700 2020 1,250 units £2,700 Required: Required: If the increased demand seen so far in 2021 continues, what a) is the the optimum order size you would recommend to Simeon?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:US Qui
Question 1- Inventory Management (LO3)
Simeon runs a business that imports tables from China for sale in
the UK.
The supplier sells these to Simeon in batches of 1,000 units.
Historically sales demand has been stable and relatively even
throughout the year, at a rate of 2,500 units per month (2018 to
2020). In the period January to June 2021 however this increased
to 3,000 per month, and they have run out of stock every month
as a result. They have estimated that each stock out has cost
them £1,000 each in lost business. Simeon has had this problem
before in 2018 (6 stock outs) and 2019 (3 stock outs) but in 2020
he had fixed the problem and achieved no stock out events.
Each batch, including shipping and taxes costs £2,500. The cost of
placing and processing each order, regardless of quantity, is £100.
Records show the following average stock holdings and associated
costs:
2018
500 units
£1,200
2019
750 units
£1,700
2020
1,250 units
£2,700
Required:
Transcribed Image Text:Required:
If the increased demand seen so far in 2021 continues, what
a)
is the the optimum order size you would recommend to Simeon?
Expert Solution
Step 1
Economic Order Quantity
Economic Order Quantity can be seen as an inventory management approach. It refers to the ideal quantity of inventory that a business should buy in order to satisfy customer demand. Additionally, a business reduces holding costs and storage costs in this method. A health facility center can serve up to 15 patients at once as an example of good service. However, during rush hour, 22 patients can be served at once.
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