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Given: Company A’s demand is boots
throughout the year and totals 20,000 units per year. Ordering costs total $40 per order. The annual holding cost rate is 28% of the value of the inventory. The per-unit cost of inventory is $10.
Company B’s demand is uniform throughout the year and totals 18,000 units per year. The production setup costs total $80 per setup. The annual holding cost rate is 30% of the value of the inventory. The per-unit cost of finished product is $21. The production rate is constant and equivalent to 64,000 units per year.
Task: Write a response in which you:
A. Determine the order size for Company A in the given scenario that would minimize total annual cost by using the economic order quantity model, showing all of your work and describing in an original essay for an audience not familiar with the formula how the answer was obtained. This essay must demonstrate the author’s competence with the subject matter.
B. Determine the lot size for Company B in the given scenario that would minimize total annual cost by using the economic production lot size model, showing all of your work and describing in an original essay for an audience not familiar with the formula how the answer was obtained. This essay must demonstrate the author’s competence with the subject matter.
