Lakeland Company, which produces lawn mowers, purchases 18,000 units of a rotor blade part each year at a cost of $60 per unit. Lakeland requires a 15% annual rate of return on investment. In addition, the relevant carrying cost (for insurance, materials handling, breakage, and so on) is $6 per unit per year. The relevant ordering cost per purchase order is $150.
1. Calculate Lakeland’s EOQ for the rotor blade part.
2. Calculate Lakeland’s annual relevant ordering costs for the EOQ calculated in requirement 1.
3. Calculate Lakeland’s annual relevant carrying costs for the EOQ calculated in requirement 1.
4. Assume that demand is uniform throughout the year and known with certainty so that there is no need for safety stocks. The purchase-order lead time is half a month. Calculate Lakeland’s reorder point for the rotor blade part.