No School

AA 1

Online-20-21 Economic order quantity for retailer. RightTime (RT) Corporation operates
a retail store featuring wristwatches. It maintains an EOQ decision model to make inventory
decisions. Currently, it is considering inventory decisions for its TagMe wristwatches product
line, which is a very popular product line. Data for 2017 are as follows:
Expected annual demand for TagMe watches 7,000
Ordering cost per purchase order $300
Carrying cost per year $14 per wristwatch
Each watch costs RT $75, and sells for $200. The $14 carrying cost per jersey per year consists
of the required return on investment of $9.00 (12% × $75 purchase price) plus $5.00 in relevant
insurance, handling, and storage costs. The purchasing lead time is 10 days. RT is open 365
days a year.
Required:
1. Calculate the EOQ for the TagMe product line.
2. Calculate the number of orders that will be placed each year.
3. Calculate the reorder point.
SOLUTION
(20 min.) Economic order quantity for retailer.
1. D = 7,000 watches per year, P = $300, C = $14 per watch per year2 DP 2 7,000 $300
EOQ C 14
 
 
= 547.72 ≅ 548 watches
2. Number of orders per year =EOQ
D =7, 000
548 = 12.77 ≅ 13 orders
3.dayworking eachDemand =daysworkingofNumber
D =7, 000
365 = 19.18 watches per day
Purchase lead time = 10 days
Reorder point = 19.18  10
= 19.18  192 watches
Online-20-22 Economic order quantity, effect of parameter changes (continuation of 20-
21). MakeWatch (MW) manufactures the TagMe wristwatches that RightTime (RT) sells to its
customers. MW has recently installed computer software that enables its customers to conduct
“one-stop” purchasing using state-of-the-art Web site technology. RT’s ordering cost per
purchase order will be $50 using this new technology