Taizhou Products uses 800 units of a product per year on a continuous

Taizhou Products uses 800 units of a product per year on a continuous basis. The product has carrying costs of $50 per unit per year and order costs of $300 per order.

It takes 30 days to receive a shipment after an order is placed and the firm requires a safety stock of 5 days usage in inventory.
(a) Calculate the economic order quantity (EOQ).
(b) Determine the reorder point. (Assume a 360-day year.)

ANSWER

(a) EOQ = = 98 units
(b) Reorder point = [30 days × (800 / 360)] + [5 × (800 / 360)] = 66.7 + 11.11 = 77.81 = 78 units