I need some help with this problem. It is giving me a migraine. Can anyone help? Thank you in advance!
A flower shop uses 800 clay pots a month. The pots are purchased at $2 each. Annual carrying costs are estimated at $0.60 per pot per year and ordering costs are $20 per order. The manager has been currently using an order size of 1600 flower pots per order.
- What additional cost is the shop incurring by using this current order size rather than the economic order quantity?
- Other than potential cost savings, what benefit(s) would using the optimal order quantity yield?
- What is the number of orders per year if the manager uses the current order quantity of 1600?
- What is the number of orders per year if the manager uses the Economic Order Quantity?
- What is the maximum number of flower pots that are held in inventory in a given ordering cycle?
- How long will each order last (in months) if the manager uses the Economic Order Quantity?
- Assume that the lead time for the pots is 1 month. What is the Reorder Point?