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Operations Management
Hammonds Corporation is trying to decide between two alternate order plans for its inventory of a certain item. Irrespective of the plan to be followed, demand for the item is expected to be 1,000 units annually. Under Plan A: order costs would be $ 40 per order and inventory holding costs (carrying cost) would be $100 per unit per annum. Under Plan B order costs would be $30 per order, while holding costs would be 20% of unit cost which is $480. Determine: i. the economic order quantity for EACH plan  ii. total inventory cost for EACH plan  iii. hence, indicate which plan would be better for the company

Hammonds Corporation is trying to decide between two alternate order plans for its inventory of a certain item. Irrespective of the plan to be followed, demand for the item is expected to be 1,000 units annually. Under Plan A: order costs would be $ 40 per order and inventory holding costs (carrying cost) would be $100 per unit per annum. Under Plan B order costs would be $30 per order, while holding costs would be 20% of unit cost which is $480. Determine: i. the economic order quantity for EACH plan  ii. total inventory cost for EACH plan  iii. hence, indicate which plan would be better for the company

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Hammonds Corporation is trying to decide between two alternate order plans for its
inventory of a certain item. Irrespective of the plan to be followed, demand for the item is
expected to be 1,000 units annually. Under Plan A: order costs would be $ 40 per order
and inventory holding costs (carrying cost) would be $100 per unit per annum. Under Plan
B order costs would be $30 per order, while holding costs would be 20% of unit cost which
is $480.
Determine:
i. the economic order quantity for EACH plan 
ii. total inventory cost for EACH plan 
iii. hence, indicate which plan would be better for the company 

 

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