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tlc26163 · Nov 12, 2009, 11:16 AM

Novelty Gifts, Inc. is experiencing some inventory control problems. The manager, Wanda LaRue, currently orders 5,000 units four times each year to handle annual demand of 20,000 units. Each order costs $15 and each unit costs $1.50 to carry. Ms. LaRue maintains a safety stock of 200 units.

a) What is Novelty Gifts' current total annual inventory cost?
b) Calculate the economic ordering quantity (EOQ).
c) What is average inventory under EOQ if Ms. LaRue maintains a safety stock of 200 units.
d) Calculate total annual inventory cost under EOQ.

Now I have figured out B and C, but I am a little confused about A and D, I need to know the formula to use for A that would be before using the EOQ. I am just drawing a blank. I know for D that I come up with 954 by using the units and orders. Is that right. But really need the formula for A. I can't remember or my brain is drawing a blank for this one. Please help me.

haider78605 · Nov 12, 2009, 11:32 AM

One can not determine inventory total cost without the cost per unit of inventory or you are asking for annual carrying cost of inventory. However the formula for average inventory is Quantity oredered divided by 2 + safety stock

tlc26163 · Nov 12, 2009, 12:27 PM

Ok if you had to answer the problem above, what would you do for A and D.

haider78605 · Nov 12, 2009, 01:28 PM

Hi

I can't answer the question for you like I can't provide a complete solution as this is against the rules you have to show that you have done some efforts so I can assist you in that..

Regards

tlc26163 · Nov 12, 2009, 04:51 PM

OK here is what I have.

for A. all I can figure is the 20000 times 15 = 300,000
I am not worried about b or c, I have those. But for d I have
32 x 15= 480
316 x 1.50= 474

which comes out to 974. For the total annual inventory costs using eoq.