Determine the economic order quantity for the new product

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Reference no: EM131356369

Kim Clark has asked you to help him determine the best ordering policy for a new product. The demand for the new product has been forecasted to be about 1,000 units annually. To help you get a handle on the carrying and ordering costs, Kim has given you the list of last year's costs. He thought that these costs might be appropriate for the new product.

COST FACTOR

COST ($)

COST FACTOR

COST ($)

Taxes for the warehouse

2,000

Warehouse supplies

280

Receiving and incoming inspection

1,500

Research and development

2,750

New product development

2,500

Purchasing salaries&wages

30,000

Acct. Dept. costs to pay invoices

500

Warehouse salaries&wages

12,800

Inventory insurance

600

Pilferage of inventory

800

Product advertising

800

Purchase order supplies

500

Spoilage

750

Inventory obsolescence

300

Sending purchasing orders

800

Purchasing Dept. overhead

1,000

He also told you that these data were compiled for 10,000 inventory items that were carried or held during the year. You have also determined that 200 orders were placed last year. Your job as a new operations management graduate is to help Kim determine the economic order quantity for the new product.

Reference no: EM131356369

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