Problem 1: Rays Satellite Emporium Wishes To Determine

Problem 1problem 1rays Satellite Emporium Wishes To Determine The Be

Ray’s Satellite Emporium wishes to determine the best order size for its best-selling satellite dish (model TS111). Ray has estimated the annual demand for this model at 1,000 units. His cost to carry one unit is $100 per year per unit, and he has estimated that each order cost $25 to place.

Paper For Above instruction

In this paper, we will analyze and calculate the optimal order quantity for Ray’s Satellite Emporium’s top-selling satellite dish using the Economic Order Quantity (EOQ) model. The EOQ model is a fundamental tool in inventory management that helps determine the ideal order quantity that minimizes total inventory costs, including ordering costs and holding costs. By applying this model, Ray can efficiently manage inventory levels, reduce costs, and meet customer demand effectively.

Given data includes an annual demand (D) of 1,000 units, a per-unit holding cost (H) of $100, and a per-order setup cost (S) of $25. The EOQ formula is expressed as:

EOQ = sqrt( (2 D S) / H )

Substituting the provided values:

EOQ = sqrt( (2 1000 25) / 100 )

Calculating the numerator:

2 1000 25 = 50,000

And dividing by the holding cost:

50,000 / 100 = 500

Taking the square root:

EOQ = sqrt(500) ≈ 22.36 units

Since orders are typically rounded to practical quantities, Ray should order approximately 22 units each time to minimize total inventory costs. This EOQ ensures a balance between the costs associated with ordering and holding inventory, thus optimizing stock replenishment schedules and improving operational efficiency.

In practical terms, Ray might consider ordering either 22 or 23 units per batch, depending on supplier constraints and inventory policies. Additionally, periodic review of demand variability and updating the EOQ calculation may help maintain optimal inventory levels over time.

In conclusion, the adoption of EOQ in managing the satellite dish inventory provides Ray’s Satellite Emporium with a systematic approach to balance costs and service levels. As demand or costs fluctuate, recalculating EOQ ensures continuous alignment with business objectives, ultimately enhancing profitability and customer satisfaction.

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