Keep-Kool makes air conditioners. It purchases 12 000 units of a particular type of compressor part, CU29, each year at a cost of £50 per unit. Keep-Kool requires a 12% annual return on investment. In addition, relevant carrying costs (for insurance, materials handling, breakage and so on) are £2 per unit per year. Relevant costs per purchase order are £120.
1. Calculate Keep-Kool’s EOQ for CU29.
2. Calculate Keep-Kool’s total ordering and carrying costs using EOQ.
3. Assume that demand is uniform throughout the year and is known with certainty. The purchasing lead time is half a month. Calculate Keep-Kool’s reorder point for CU29.