maximum of 600 boxes. The supplier takes an average of 5 days to deliver the order. During busier times, the supplier may take 7 days. Based on ABC’s records, ordering cost average P400 per order. Storage cost per box average P5 per year. There is also an opportunity cost of 1% per
ABC Corporation resells one type of candle. It has 250 working days. Each day, it sells an average of 500 boxes but may
sometimes sell a maximum of 600 boxes. The supplier takes an average of 5 days to deliver the order. During busier times, the
supplier may take 7 days.
Based on ABC’s records, ordering cost average P400 per order. Storage cost per box average P5 per year. There is also an
opportunity cost of 1% per year for every peso invested in inventories. Each box of candles costs P450.
If ABC would continue its current inventory management policy, it would keep 10,000 boxes as safety stock and order ten-
days-worth of inventory.
1. What would the average number of boxes be if the safety stock from Part A was kept and the EOQ from Part B was followed?
2. How much would the carrying cost for the year be based on item 1?
3. How much would the total inventory related (ordering plus carrying) costs be if the economic order quantity was followed (including safety stock)?
4. How much would the
5. How much would the total inventory-related costs be?
6. How would you describe the entity’s current policy?
Step by step
Solved in 2 steps
