Chapter 20, Problem 20.22E

Economic order quantity, effect of parameter changes (continuation of 20-21). Sportsman Textiles (ST) manufactures the Galaxy jerseys that Wonder Line (WL) sells to its customers. ST has recently Installed computer software that enables its customers to conduct “one-stop” purchasing using state-of-the-art Web site technology. WL’s ordering cost per purchase order will be $40 using this new technology.

1. 1. Calculate the EOQ for the Galaxy jerseys using the revised ordering cost of $40 per purchase order. Assume all other data from Exercise 20-21 are the same. Comment on the result.

Required

1. 2. Suppose ST proposes to “assist” WL. ST will allow WL customers to order directly from the ST Web site. ST would ship directly to these customers. ST would pay $12 to WL for every Galaxy jersey purchased by one of WL’s customers. Comment qualitatively on how this offer would affect inventory management at WL. What factors should WL consider in deciding whether to accept ST’s proposal?

20-21 Economic order quantity for retailer. Wonder Line (WL) operates a megastore featuring sports merchandise. It uses an EOQ decision model to make inventory decisions. It is now considering inventory decisions for its Los Angeles Galaxy soccer jerseys product line. This is a highly popular item. Data for 2017 are as follows:

Expected annual demand for Galaxy jerseys	9,000
Ordering cost per purchase order	$250
Carrying cost per year	$8 per jersey

Each jersey costs WL $50 and sells for $100. The $8 carrying cost per jersey per year consists of the required return on investment of $5.00 (10% × $50 purchase price) plus $3.00 in relevant insurance, handling, and storage costs. The purchasing lead time is 5 days. WL is open 365 days a year.

1. 1. Calculate the EOQ.

Required

1. 2. Calculate the number of orders that will be placed each year.
2. 3. Calculate the reorder point.