Question

Michigan State Figurine Inc. (MSF) sells crystal figurines to Spartan fans. MSF buys the figurines from a manufacturer for $32 per unit. They send orders electronically to the manufacturer, costing $57 per order and they experience an average lead time of seven days for each order to arrive from the manufacturer. Their inventory carrying cost is 20 percent. The average daily demand for the figurines is three units per day. They are open for business 250 days a year. Answer the following questions:

Answer 1

Annual demand, D = Average daily demand of 3 units per day * 250 days per year = 750 units

Ordering cost, S = $ 57

Holding cost, H = 32*.2 = $ 6.4

a)

Number of units to order each time, Q = sqrt(2DS/H)

= sqrt(2*750*57/6.4)

= 116

b)

Number of orders per year = D/Q

= 750/116

= 6.47

c)

Average inventory = Q/2

= 116/2

= 58

d)

Annual ordering cost = Number of orders per year * S

= 6.47*57

= $ 368.79

e)

Annual inventory carrying cost = Average inventory * H

= 58*6.4

= $ 371.2