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Question: sunshine ltd is a retailer in selling sports products it...

Question details

Sunshine Ltd is a retailer in selling sports products. It uses an EOQ decision model to make inventory decisions. It is now considering inventory decisions for its surfing board product line. This is a highly popular item. Data for 2019 are as follows:

 

Expected annual demand

10 000

Ordering cost per purchase order

$280

Carrying cost per year

$9 per surfing board

 

Each surfing board costs Sunshine Ltd $55 and sells for $105. The $9 carrying cost per surfing board per year consists of the required return on investment of $5.50 (10% × $55 purchase price) plus $3.50 in relevant insurance, handling and storage costs. The purchasing lead time is 7 days. Sunshine Ltd is open 365 days in a year.

 

Required

1.    Calculate the EOQ. (3 marks)

2.    Calculate the number of orders that will be placed each year. (2 marks)

3.    Calculate the reorder point. (2 marks)

 

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