1.Tiger Corporation purchases 1,200,000 units per year of one component.
The fixed cost per order is $25. The annual carrying cost of the item is 27% of its $2 cost.
a. Determine the EOQ if (1) the conditions stated above hold, (2) the order cost is
zero rather than $25, and (3) the order cost is $25 but the carrying cost is $0.01.
b. What do your answers illustrate about the EOQ model? Explain.
2.Alexis Company uses 800 units of a product per
year on a continuous basis. The product has a fixed cost of $50 per order, and its carrying cost is $2 per unit per year. It takes 5 days to receive a shipment after an order
is placed, and the firm wishes to hold 10 days’ usage in inventory as a safety stock.
a. Calculate the EOQ.
b. Determine the average level of inventory. (Note: Use a 365-day year to calculate
daily usage.)
c. Determine the reorder point.
d. Indicate which of the following variables change if the firm does not hold the
safety stock: (1) order cost, (2) carrying cost, (3) total inventory cost, (4) reorder
point, (5) economic order quantity. Explain.
