Playfair Limited is a company that purchases toys from abroad for resale to retailstores on credit. The company is concerned about its inventory (stock)management operations. It is considering adopting a stock management systembased upon the economic order quantity (EOQ) model.The company's estimates of its inventory management are shown below:Carrying cost (holding cost) of inventories as apercentage of purchase cost of toys per yearStorage costsInsuranceHandlingObsolete inventoryOpportunity costs of funds invested in inventory%31131018 The purchase price of the toys to Playfair Limited is R4.50 per unit.Fixed costs associated with placing each order for inventory are R311.54. There isa two-week delay between the time that new inventory is ordered from suppliersand the time that it arrives.The toys are sold by Playfair Limited at a unit price of R6.30. The variable cost ofselling the toys is R0.30 per unit. Demand from Playfair Limited's customers forthe toys 520 000 units per year.REQUIRED:Calculate the optimum order quantity of inventory for Playfair Limited over aone-year planning period using the EOQ model.

Storage costs: 3% Insurance = 1% Handling = 1% Obsolescence = 3% Opportunity costs = 10%D = Annual…

Answered: Calculate the optimum order quantity of…

Calculate the optimum order quantity of inventory for Playfair Limited over a one-year planning period using the EOQ model.

Purchasing and Supply Chain Management

6th Edition

ISBN:9781285869681

Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Chapter16: Lean Supply Chain Management

Section: Chapter Questions

Problem 10DQ: The chapter presented various approaches for the control of inventory investment. Discuss three...

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