Assume that demand increases by 1 percent, the absolute value of price elasticity of demand is 1.0, and price elasticity of supp
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Answer:
a. 136.93 units
b. $2,783.60
c. $2,783.63
d. 60 units
Explanation:
a. The computation of the economic order quantity is shown below:
= 136.93 units
b. The annual holding cost is
= Economic order quantity ÷ 2 × holding cost per order
= 136.93 units ÷ 2 × $40
= $2,738.60
c. The annual ordering cost is
= Annual demand ÷ economic order quantity × ordering cost per order
= $2,500 ÷ 136.93 units × $150
= $2,738.63
d. The reorder point is
= Demand × lead time + safety stock
where, Demand equal to
= Expected demand ÷ total number of days in a year
= 2,500 ÷ 250 days
= 10
So, the reorder point would be
= 10 × 6 + $0
= 60 units
We simply applied the above formulas