# operation management

December 7, 2015

The local technology store WiredIn hired you to manage their inventory, which consists of 2 products configurations, type L and type J. Below are the data for the products. The holding cost is 24% of the unit costs. Product Type L Type J Demand per year 48000 (units) 72000 (units) Unit Cost \$50 \$85 Ordering Cost \$125/order \$125/order A. Use the economic order quantity model to determine the order size for both products. B. Calculate the total relevant cost associated with the EOQ calculated in part (A) C. Assume that the real ordering cost is \$200 instead of \$125. How large are the additional relevant costs incurred by the bad estimate of the ordering cost for Type J? D. If WiredIn chooses to order 1300 of Type L instead of the EOQ, calculate the percentage cost error of this order size. E. Calculate the best order quantity for Type J assuming that WiredIn gets a 40 percent discount on the entire order if they order more than 1500 units. F. Assume that each unit occupies 0.10 cubic foot of space, for which WiredIn figures it costs them \$2 per year per cubic foot. Calculate the best order quantity under these circumstances for Type L (assuming no quantity discounts in this part of the question). G. One of the managers is trying to understand the reasons for the high cost of ordering. He wonders how low the ordering cost (A) must become for the EOQ to equal one unit. What is your response for Type L? (assuming no quantity discounts and no space costs)

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