Tim Madsen is the purchasing agent for Computer Center, a large discount computer store.
He has recently added the hottest new computer, the Power model, to the store’s stock of
goods. Sales of this model now are running at about 13 per week. Tim purchases these
computers directly from the manufacturer at a unit cost of RM3,000, where each shipment
takes half a week to arrive.
Tim routinely uses the basic EOQ model to determine the store’s inventory policy for each of
its more important products. For this purpose, he estimates that the annual cost of holding
items in inventory is 20% of their purchase cost. He also estimates that the administrative
cost associated with placing each order is RM75. Tim currently is using the policy of
ordering five Power model computers at a time.
[1 year = 52 weeks]