Not long ago, Home Depot was considering stocking a new deluxe toilet unit in its bathroom fixtures department. It was trying to broaden its product line to appeal to home improvement contractors, and this item had recentlv been featured in Architectural Digest. The toilet seat contains a special feature. Siting on the seat activates a system that sprays up a fine mist of air freshener and plays music. You can choose the scent and whatever musical selection moves you. (We are not making this up!)
The new toilet units had been test marketed successfully, and Home Depot estimated that sales would average 1,000 units per year. It would COSt $100 to keep a unit in inventory for a year, and the fixed reordering cost would be $80. Home Depot's COSt would be $500 per unit.
SAFETY STOCKS AND EXPECTED STOCKOUT COSTS
What is Home Depot's EOQ for the deluxe toilet units? Using the EOQ, what are the average inventory, number of orders per year, and the total annual cost of maintaining the inventory of deluxe toilet units) What would the EOQ be if expected sales were 2,000 units per year, ordering COSt was $160, and the carrying cost was $200?
****See the attached scan for table or safety stocks and expected stout costs. "