Chapter 20, Problem 20.24E

EOQ for manufacturer. Sk8 Company produces skateboards and purchases 20,000 units of a wheel bearing each year at a cost of $1 per unit. Sk8 requires a 15% annual rate of return on investment. In addition, the relevant carrying cost (for insurance, materials handling, breakage, etc.) is $0.17 per unit per year. The relevant ordering cost per purchase order is $38.40.

1. 1. Calculate Sk8’s EOQ for the wheel bearing.

Required

1. 2. Calculate Sk8’s annual relevant ordering costs for the EOQ calculated in requirement 1.
2. 3. Calculate Sk8’s annual relevant carrying costs for the EOQ calculated in requirement 1.
3. 4. Assume that demand is uniform throughout the year and known with certainty so there is no need for safety stocks. The purchase-order lead time is half a month. Calculate Sk8’s reorder point for the wheel bearing.