1.Tiger Corporation purchases 1,200,000 units per year of one component.


The fixed cost per order is $25. The annual carrying cost of the item is 27% of its $2 cost.

a. Determine the EOQ if (1) the conditions stated above hold, (2) the order cost is

zero rather than $25, and (3) the order cost is $25 but the carrying cost is $0.01.

b. What do your answers illustrate about the EOQ model? Explain.

2.Alexis Company uses 800 units of a product per

year on a continuous basis. The product has a fixed cost of $50 per order, and its carrying cost is $2 per unit per year. It takes 5 days to receive a shipment after an order

is placed, and the firm wishes to hold 10 days’ usage in inventory as a safety stock.

a. Calculate the EOQ.

b. Determine the average level of inventory. (Note: Use a 365-day year to calculate

daily usage.)

c. Determine the reorder point.

d. Indicate which of the following variables change if the firm does not hold the

safety stock: (1) order cost, (2) carrying cost, (3) total inventory cost, (4) reorder

point, (5) economic order quantity. Explain.