Bundaberg Glass Company is a distributor of car windscreens. The windscreens are manufactured in Japan and shipped to Bundaberg. The management is…

Bundaberg Glass Company is a distributor of car windscreens. The windscreens are manufactured in Japan and shipped to Bundaberg. The management is expecting an annual demand of 30000 windscreens. The purchase price of each windscreen is $500. Currently, company orders 250 windscreens per order. According to the management, it takes 2 weeks to receive a new order, and the company works 6 days per week for 50 weeks each year. Other costs associated with ordering and maintaining an inventory of these windscreens are given below:

+ The cost incurred in the purchase order department for placing and processing 60 orders for the last year was $30000 (including fixed costs of $6000). Variable ordering cost tend to increased by 20% annually.

+ Insurance cost on inventory is 10% of purchase price of per windscreen.

+ Damage and shortage cost is $15 per windscreen.

+ Other inventory holding cost is $10 per windscreen.

Requirements:

(i) Determine the optimal order quantity for car windscreens using the economic order quantity (EOQ) model.

(ii) Compute reorder point and safety stock if demand each day may vary from the average by up to 20%.

(iii) Calculate the total annual inventory cost of windscreen at the EOQ. Show the total cost of carrying and ordering separately.

(iv) Determine if the company could save annual inventory costs by using the EOQ model. Show your calculations.

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