Joe’s Office The annual holding cost

December 14, 2020

Customers at Joe’s Office Supply Store demand an average of 6,000 desks per year. Each time an order is placed, an ordering cost of $300 is incurred. The annual holding cost for a single desk is 25% of the $200 cost of a desk. One week elapses between the placement of an order and the arrival of the order. In parts (a)–(d), assume that no shortages are allowed.

a Each time an order is placed, how many desks should be ordered?

b How many orders should be placed each year?

c Determine the total annual costs (excluding purchasing costs) of meeting the customers’ demands for desks.

d Determine the reorder point. If the lead time were five weeks, what would be the reorder point? (52 weeks = one year.)

e How would the answers to parts (a) and (b) change if shortages were allowed and a cost of $80 is incurred if Joe’s is short one desk for one year?