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Parker Hi-Fi Systems
Transcript of Parker Hi-Fi Systems
A) What is the optimal order number of LCD's that should be placed in each order?
B) What is the optimal reorder point (ROP) for LCDs?
C) What cost savings will Parker realize of it implements an order plan based on EOQ?
Sells the finest home theater systems.
LCD screens are one of the forte of the company.
Assembled from the best manufacturers worldwide.
Order release for LCD screens being submitted once every
Annual requirement = 500 units (2per working day)
Unit per cost is = $1500
Parker's president requested for a re-evaluation of the inventory procurement.
In other words, Parker's president is trying to find ways to minimize cost.
FOXY promises delivery within one week following a receipt of an order release.
Total time between date of release and date of receipt is =
one week or five working days
Activity Based Costing
Procurement costs which amounts to $500 per order, including the labor costs in ordering, custom inspection, arranging from airport and etc..
Parker's Holding Cost take in account the storage damage, insurance and so forth on a square foot basis.
These costs equal to $150 per LCD a year.
-D (Annual Demand) = 500 units (2per working day)
-S (Set up Costs) = $500
-H (Holding Cost) = $150
-P (Price/Unit) = $1500
-d (daily demand rate) = 2 units
Parker Hi-Fi systems
A) Optimal Order Quantity / Economic Order Quantity Formula,
Optimal Reorder Point Formula
ROP = d * L
ROP = 2 * 5
Optimal Reorder Point = 10 units
Total Annual Cost (EOQ)
Total Cost on Normal Operation
Q*= 500/13 orders
Assuming that all other is equal, the computation for total cost will be:
TC= D/Q(S) + Q/2(H) +PD
TC=500/39(500) + 39/2(150) + 1500(500)
We now get the difference of the 2 cost.
TC= 759, 335.26 – 758, 660.34
Total cost savings = 674.92