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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 ($)
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
Purchase order supplies
Spoilage
750
Inventory obsolescence
300
Sending purchasing orders
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.
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