Blanchard Importing And Distributing Co., Inc
Blanchard Importing and Distributing Co., Inc
Question 1: EOQ/ROP Calculations
Multi period Inventory System: Fixed-Order Quantity Model (EOQ/ROP)
Assumptions:
Demand for products is constant, however safety stock added as precaution to stock outs.
Probability of not stocking out is 95%
Lead time is constant
Price per unit is constant
Inventory holding cost is based on average inventory and storage costs for safety stock
Setup costs are constant
All demands for product will be satisfied
Setup Costs: Consists of combination of blending costs and other various setup costs. Blending costs include withdrawing spirits from storage and complete rectification of item. The other various setup costs consist of size changeovers, label changeovers, and order processing costs. The original 1969 figures were also used for the adjusted 1972 figures.
Blending/Withdraw spirits from storage/Complete rectification Varies
Size changeover $8.85
Label changeover $11.78
Order processing cost $51.43
Total $72.06
Annual Demand: Based on Fiscal Year Ending January 1972 sales, located in Exhibit 5. Determined average weekly demand based on the 1971 sales over 52 week period.
Annual Holding Cost (H): We agree with the 1969 figure of 11.5% total. This includes 9% Cost of Capital and 2.5% other holding costs, which include estimated costs of obsolescence, shrinkage, insurance and year-end inventory tax. This figure also takes into consideration the potential for additional costs due to storage costs for the safety stock we have added to our ROP. However, based on current warehouse capacity, the reserved space for finished goods is only used a maximum of 50% at any given time. This allows for plenty additional storage space for the additional inventory and does...
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