What is the optimal order size for home depot

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Home Depot purchases shovels from a supplier in China. Home Depot’s stores in the United States sell 200,000 units of shovels each year. Assume a constant demand rate. Each unit costs $10 and annual holding cost is 20 percent of the unit cost. Shipping company charges Home Depot $5500 as a fixed cost per shipment.

a) What is the optimal order size for Home Depot?

b) How many orders does Home Depot place per year when it uses optimal order size?

c) Calculate the annual ordering (set up), holding, and purchase costs under the optimal order size?

d) Suppose Home Depot wants to decrease its optimal order size to 25,000 units to decrease inventories. To do so, by how much should Home Depot reduce its fixed ordering (shipment) cost?

Reference no: EM132234427

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