Rugged Outfitters purchases one model of mountain bike at a wholesale cost of $520 per unit and resells it to end consumers. The annual demand for the company’s product is 49,000 units. Ordering costs are $500 per order and carrying costs are $100 per bike per year, including $40 in the opportunity cost of holding inventory. Q. Assume that when evaluating the manager, the company excludes the opportunity cost of carrying inventory. If the manager makes the EOQ decision excluding the opportunity cost of carrying inventory, the relevant carrying cost would be $60, not $100. How would this affect the EOQ amount and the actual annual relevant cost of ordering and carrying inventory?

Rugged Outfitters purchases one model of mountain bike at a wholesale cost of $520 per unit and resells it to end consumers. The annual demand for the company’s product is 49,000 units. Ordering costs are $500 per order and carrying costs are $100 per bike per year, including $40 in the opportunity cost of holding inventory. Q. Assume that when evaluating the manager, the company excludes the opportunity cost of carrying inventory. If the manager makes the EOQ decision excluding the opportunity cost of carrying inventory, the relevant carrying cost would be $60, not $100. How would this affect the EOQ amount and the actual annual relevant cost of ordering and carrying inventory?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 7E: Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The...

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Auto Zone purchases replacement brake fluid reservoirs directly from the manufacturer. Demand is roughly 1000 units per month over the year. Ordering costs are $25 per order and the reservoirs are $10.00 per unit. Annual holding costs are 20% of the value of the inventory. There are 311 working days per year and the lead time is 5 days. Address the following inventory management issues that need to be resolved. a) What is the EOQ for this component? b) What is the reorder point? c) What is the cycle time? d) What are the total annual holding and ordering costs associated with your recommended EOQ?
Rugged Outfitters purchases one model of mountain bike at a wholesale cost of $520 per unit and resells it to end consumers. The annual demand for the company’s product is 49,000 units. Ordering costs are $500 per order and carrying costs are $100 per bike per year, including $40 in the opportunity cost of holding inventory. QWhat is the cost impact on the company of excluding the opportunity cost of carrying inventory when making EOQ decisions? Why do you think the company currently excludes the opportunity costs of carrying inventory when evaluating the manager’s performance? What could the company do to encourage the manager to make decisions more congruent with the goal of reducing total inventory costs?
Rugged Outfitters purchases one model of mountain bike at a wholesale cost of $520 per unit and resells it to end consumers. The annual demand for the company’s product is 49,000 units. Ordering costs are $500 per order and carrying costs are $100 per bike per year, including $40 in the opportunity cost of holding inventory. Q. Compute the optimal order quantity using the EOQ model.
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Rugged Outfitters purchases one model of mountain bike at a wholesale cost of $520 per unit and resells it to end consumers. The annual demand for the company’s product is 49,000 units. Ordering costs are $500 per order and carrying costs are $100 per bike per year, including $40 in the opportunity cost of holding inventory. Q. Compute (a) the number of orders per year and (b) the annual relevant total cost of ordering and carrying inventory.
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