Effect of different order quantities on ordering costs and carrying costs, EOQ. Soothing Meadow, a retailer of bed and bath linen, sells 380,000 packages of Mona Lisa designer sheets each year. Soothing Meadow incurs an ordering cost of $57 per purchase order placed with Mona Lisa Enterprises and an annual carrying cost of $12.00 per package. Liv Carrol, purchasing manager at Soothing Meadow, seeks your help: She wants to understand how ordering and carrying costs vary with order quantity.
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Required
1. Complete the table for Liv Carrol. What is the EOQ? Comment on your results.
2. Mona Lisa is about to introduce a Web based ordering system for its customers. Liv Carrol estimates that Soothing Meadow’s ordering costs will reduce to $30 per purchase order. Calculate the new EOQ and the new annual relevant costs of ordering and carrying inventory.
3. Liv Carrol estimates that Soothing Meadow will incur a cost of $2,150 to train its two purchasing assistants to use the new Mona Lisa system. Will Soothing Meadow recoup its training costs within the first year ofadoption?