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Blueline Manufacturing starts each period with 780 tennis rackets in stock and total yearly sales is 45 000 units
Blueline Manufacturing starts each period with 780 tennis rackets in stock and total yearly sales is 45 000 units. This stock is depleted each month and reordered. If the carrying cost per racket is $4, and the fixed order cost is $6. Is Blueline following an economically order size strategy?
Expert Solution
| Answer lead: |
| Economically order size is computed using demand, order cost and holding cost. |
| Inputs: | |
| Opening stock | 780 |
| Annual demand | 45000 |
| carrying cost per racket in $ | 4 |
| order cost in $ | 6 |
| Working: | ||
| EOQ= | √2AB/C | |
| A- annual demand | 45000 | |
| B-order cost | 4 | |
| C- carrying cost | 6 | |
| EOQ= | √2*45000*4/6 | |
| 244.95 | ||
| EOQ | 245 | rounded off |
| Solution: |
| EOQ for blue line manufacturing is 245 but the entity stocks 780 tennis rackets. |
| Blue line manufacturing has higher stock (780) than EOQ (245). |
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