What are the annual ordering cost-annual holding cost

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Reference no: EM132308490

A computer equipment retailer has four retail locations. Currently each outlet manages its ordering independently. Demand at each retail outlet averages 4,000 units per week. Each unit costs $200; the holding cost is 20% per annum. The fixed cost of each order (administrative plus transportation) is $900. Assume 52 weeks in a year.

1. What are the annual ordering cost, annual holding cost and total cost functions for this company?

2. Given that each outlet orders independently and gets its own delivery, determine the optimal order size at each outlet graphically (find EOQ graphically).

3. Given that each outlet orders independently and gets its own delivery, determine the optimal order size at each outlet mathematically.

4. What is the average inventory for each outlet? Across all outlets?

5. How many orders must be placed annually?

6. How frequently orders must be placed?

7. What is the inventory turnover ratio?

If the purchasing centralizes purchasing (for all four outlets), the retailer will only have to place a single order for all the outlets. The supplier will deliver the order on a common truck to a transit point and individual outlet requirements are identical. The total order is split equally and shipped to the retailers from this transit point. The entire operation has increased the fixed cost of placing an order to $1,800.

A. What is the EOQ under centralization?

B. Compare and discuss the two options. Should the company centralize? Why?

Reference no: EM132308490

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