Scenario 9.5
Tom Bergman, owner and operator of the Earplug Superstore, is reviewing the costs associated with the store's best-selling hearing aid, the BZ15. The data available to Dr. Bergman concerning this device follow.
Demand = 25 units/week
Order cost = $3/order
Holding cost = $1.50/unit/year
The Earplug Superstore operates 52 weeks a year.
-A neighborhood sportswear store sells a pair of Victoria sneakers for $40. Due to the recent fitness craze, these shoes are in high demand: 50 pairs of shoes are sold per week. The ordering cost is $20 per order, and the annual holding cost is 20% of the selling price. If the store operates 52 weeks a year, what can you say about the current lot size of 235?
A) too large
B) too small
C) just right
D) cannot tell from the information given

Question

Quizplus · Accepted Answer

To determine if the current lot size of 235 is appropriate for the Victoria sneakers, we need to calculate the economic order quantity (EOQ) which minimizes the total ordering and holding costs. Using the given data, the EOQ can be calculated as follows:

EOQ = √((2 * demand * order cost) / holding cost)
EOQ = √((2 * 50 * $20) / ($40 * 0.2))
EOQ = √500 = 22.4 (rounded up to 23)

Since the current lot size is larger than the EOQ, it implies that the store is ordering more than it needs to, resulting in excess holding costs. Therefore, the current lot size of 235 is too large.

Scenario 9.5 Tom Bergman, Owner and Operator of the Earplug Superstore, Is