Customers at Joe’s Office Supply Store demand an average of 6,000 desks per year. Each time an order is placed, an ordering cost of $300 is incurred. The annual holding cost for a single desk is 25% of the $200 cost of a desk. One week elapses between the placement of an order and the arrival of the order. In parts (a)–(d), assume that no shortages are allowed.
a Each time an order is placed, how many desks should be ordered?
b How many orders should be placed each year?
c Determine the total annual costs (excluding purchasing costs) of meeting the customers’ demands for desks.
d Determine the reorder point. If the lead time were five weeks, what would be the reorder point? (52 weeks = one year.)
e How would the answers to parts (a) and (b) change if shortages were allowed and a cost of $80 is incurred if Joe’s is short one desk for one year?