Customers atfurniture store demand an average of 6,000 bookcases peryear. Each time an order is placed, an ordering cost of $300 is incurred. The annualholding cost for a single desk is 25% of the $200 cost of a bookcase. Assume thatthe lead time to receive an order is one week.a) Each time an order is placed, how many bookcases should be ordered?b) What is the cycle time, T?c) How many orders should be placed each year?d) Determine the total annual costs of meeting the customers' demands forbookcases.

Answered: Customers at furniture store demand an…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Related questions

Question

Customers at
furniture store demand an average of 6,000 bookcases per
year. Each time an order is placed, an ordering cost of $300 is incurred. The annual
holding cost for a single desk is 25% of the $200 cost of a bookcase. Assume that
the lead time to receive an order is one week.
a) Each time an order is placed, how many bookcases should be ordered?
b) What is the cycle time, T?
c) How many orders should be placed each year?
d) Determine the total annual costs of meeting the customers' demands for
bookcases.

Expert Solution

Step 1

The economic order quantity is the best order quantity for a corporation to purchase in order to reduce inventory costs such as holding charges, shortage costs, and order fees (EOQ).

The following is the EOQ formula:

$E O Q = \sqrt{\frac{2 D S}{H}} w h e r e, D = D e m a n d i n u n i t s S = O r d e r \cos t (p e r p u r c h a s e o r d e r) H = H o l d i n g \cos t (p e r u n i t o r p e r y e a r)$