A local lamp store expects to sell 2000 lamps in the coming year. It c

A local lamp store expects to sell 2000 lamps in the coming year. It costs the store $1.00 in carrying costs for each
lamp and $10.00 for each order placed.

a. What is the economic order quantity for the lamps?
b. How many orders will be placed each year?
c. If the store wants a one-week safety stock and it takes one week to receive an order after it has been placed,
what should the inventory level be when a new order is placed? Assume a 50-week year.

ANSWER

a. Q* = 2SO
C =
210.(2000)
1 = 200
b. # orders = S/Q* = 2000/200 = 10 orders per year
c. 1-week supply = 2000/50 = 40 lamps
order level = safety stock + 1 – week order lag
= 40 + 40
= 80 lamps is the order point