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# sol20 - CHAPTER 20 INVENTORY MANAGEMENT JUST-IN-TIME AND...

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CHAPTER 20 INVENTORY MANAGEMENT, JUST-IN-TIME, AND SIMPLIFIED COSTING METHODS 20-16 (20 min.) Economic order quantity for retailer. 1. D = 10,000 jerseys per year, P = \$200, C = \$7 per jersey per year 7 200 \$ 000 , 10 2 C DP 2 EOQ × × = = = 755.93 2245 756 jerseys 2. Number of orders per year = EOQ D = 756 000 , 10 = 13.22 2245 14 orders 3. day working each Demand = days working of Number D = 365 000 , 10 = 27.40 jerseys per day Purchase lead time = 7 days Reorder point = 27.40 × 7 = 191.80 2245 192 jerseys 20-1

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20-17 (20 min.) Economic order quantity, effect of parameter changes (continuation of 20-16). 1. D = 10,000 jerseys per year, P = \$30, C = \$7 per jersey per year 7 30 \$ 000 , 10 2 C DP 2 EOQ × × = = = 292.77 jerseys 2245 293 jerseys The sizable reduction in ordering cost (from \$200 to \$30 per purchase order) has reduced the EOQ from 756 to 293. 2. The AT proposal has both upsides and downsides. The upside is potentially higher sales. FB customers may purchase more online than if they have to physically visit a store. FB would also have lower administrative costs and lower inventory holding costs with the proposal.
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