EBK OM
6th Edition
ISBN: 9781305888210
Author: Collier
Publisher: YUZU
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Chapter 11, Problem 7PA
Summary Introduction
Interpretation:The total annual cost needs to be calculated when 400 boxes will be ordered.
Concept Introduction: The economic order quantity approach aims to reduce the costs associated with holding, inventory and ordering.
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MamaMia's Pizza purchases its pizza delivery boxes from a printer. MamaMia's delivers an average of 450 pizzas weekly. Boxes cost 75 cents each, and each order costs $3 to process. Because of limited storage space, the manager wants to charge inventory holding at 18 percent of box unit cost. The lead time to obtain boxes from the printer is seven days, and the restaurant is open 360 days per year.
A. The economic order quantity (EOQ) for boxes is approximately:
B. In the MamaMia's Pizza example above, the total annual cost (TAC) associated with the EOQ-based policy is approximately:
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