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    Bowen Built, Inc.

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    Nikki D. Chavez
    The document discusses the economic order quantity (EOQ) for inventory management at Bowen Built, Inc. It provides examples of calculating the EOQ with different cost factors and supplier options. The document also addresses assumptions of the EOQ model and factors to consider beyond costs in choosing an inventory supplier.

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    Bowen Built, Inc.

    Uploaded by

    Nikki D. Chavez
    521 views13 pages
    The document discusses the economic order quantity (EOQ) for inventory management at Bowen Built, Inc. It provides examples of calculating the EOQ with different cost factors and supplier options. The document also addresses assumptions of the EOQ model and factors to consider beyond costs in choosing an inventory supplier.

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    The document discusses the economic order quantity (EOQ) for inventory management at Bowen Built, Inc. It provides examples of calculating the EOQ with different cost factors and supplier options. The document also addresses assumptions of the EOQ model and factors to consider beyond costs in choosing an inventory supplier.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    521 views13 pages

    Bowen Built, Inc.

    Uploaded by

    Nikki D. Chavez
    The document discusses the economic order quantity (EOQ) for inventory management at Bowen Built, Inc. It provides examples of calculating the EOQ with different cost factors and supplier options. The document also addresses assumptions of the EOQ model and factors to consider beyond costs in choosing an inventory supplier.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 13

    CASE 18 1

    BOWEN BUILT, INC.


    INVENTORY –
    ECONOMIC ORDER
    QUANTITY

    Marco, Lycka R.
    Mercado, Jonathan I.
    6

    QUESTION NO. 1
    • 𝑐 = 0.2 × 30 = 6
    • 𝑂 = 300 + 60 = 360

    2𝑆𝑂 2×12,000×360
    EOQ = 𝑐
    = 0.2×30
    = 397.5 =
    380 𝑢𝑛𝑖𝑡𝑠

    The total EOQ cost is,

    360 × 12,000 6 × 380


    𝑇𝐶 30 = +
    380 2
    = $12508.42
    𝑇𝐶 30
    (360) × 12000 6 × 500
    = +
    500 2
    = $10140
    QUESTION NO. 2
    Option 1 Option 2
    𝑐 = 0.2 × 29 = 5.8 𝑐 = 0.2 × 28.5 = 5.7

    2 × 12,000 × 60 2 × 12,000 × 60
    𝐸𝑂𝑄 = 𝐸𝑂𝑄 =
    5.8 5.7
    = 498.27 = 498 𝑢𝑛𝑖𝑡𝑠 = 502.62 = 503 𝑢𝑛𝑖𝑡𝑠

    𝑇𝐶 29 𝑇𝐶 28.5
    60 × 12,000 5.8 × 498 60 × 12,000 5.7 × 503
    = + = +
    498 2 503 2
    = $2890 = $2865
    8

    QUESTION NO. 3
    Yes, Bowen should use Kentech because they
    offer pump with lower price than Precision. The lower
    the price, the lower the carrying cost. Also, there no
    handling fee per order for Kentech. Bowen can save
    $300 per order if he use Kentech.
    𝑆 12,000
    𝑁𝑜 𝑜𝑓 𝑜𝑟𝑑𝑒𝑟 = = =
    𝑄 500
    24 𝑜𝑟𝑑𝑒𝑟𝑠

    H𝑎𝑛𝑑𝑙𝑖𝑛𝑔 𝑓𝑒𝑒 = 24 × $300


    = $7200
    9

    QUESTION NO. 4

    Bowen should order 1,000 units with the price $29 per unit. He
    can save up to $2440.
    Option 1 Option 2
    Q= 1,000 Q= 2,000
    𝑇𝐶 29 𝑇𝐶 28.5
    (60) × 12,000 5.8 × 1,000 60 × 12,000 5.7 × 2,000
    = + = +
    1,000 2 2,000 2
    = 3620 = 6060

    TC (28.5) –TC (29) = $6060-$3620 =$2440


    QUESTION NO. 5
    EOQ Assumptions:
    • Constant or uniform demand
    • Constant unit price
    • Constant carrying costs
    • Constant ordering cost
    • Instantaneous delivery
    • Independent orders
    • The assumption is reasonable, because Bowen
    "make-to-stock" strategy and the item has relatively stable demand.
    Carrying costs and setup or ordering costs are knownnandBuilt Inc use
    relatively stable.
    QUESTION NO. 6
    Factors besides EOQ in determining
    supplier.
    • Terms of credit
    • Location of the supplier
    a
    • Credit worthiness of the supplier
    • Warehousing facilities available with the
    supplier
    • Size of the supplier’s firm and their product
    quality control
    QUESTION NO. 7
    • Reorder Point when safety stock is generously
    2 weeks:
    RP = (2 * 240) + 2 * 240 = 960 Cost Reduction by Adjusting
    Reorder Point:
    • Reorder point whe safety stock is trimmed
    into 1 week: • Perry decided to study in detail
    RP = (2 * 240) + 1* 240 = 720 a single item, brake pumps, to
    • Number of orders in a year:
    help him learn more about the
    potential savings. Therefore,
    RP (Safety Stock 2 weeks)  12,000 / 960 = 12.5
    times the specific item that is
    RP (Safety Stock 1 week)  12,000 / 720 = 16.67 examined is the brake pumps.
    times • Annual usage of Brake
    Pump: 12,000 units
    • Units of safety stock annually: • Operation Time in a Year: 50
    weeks
    RP (Safety Stock 2 weeks)  12.5 * 2* 280 = 6,000
    units • Weekly usage of Brake Pump:
    RP (Safety Stock 1 week)  16.67 *1* 280 = 4,000
    units
    • Total amount of reduction of safety stock:
    QUESTION NO. 8
    Carrying Cost:
    • Total cost of holding inventory over some
    period of time
    • Short term
    • Warehousing costs rent, utilities and salaries, financial costs such
    as opportunity cost, and inventory costs related to perishability,
    pilferage, shrinkage and insurance.
    • Utilized to help determine how much profit can be made on
    current inventory
    • Helps to find out if there is a need to produce more or less
    Carrying cost is expected to be a short term because
    cost like rent, utilities, insurance, breakage is paid not
    in a long term basis. Often the costs are computed for
    annually and then
    QUESTION NO. 9
    Change in Carrying Cost Affecting EOQ:

    • Surely a change in carrying cost will affect the EOQ

    • The more carrying cost needed, the lower rate of EOQ will be
    generated.

    • Suppose the carrying cost is now 30 percent, surely this would


    affect the EOQ. The EOQ will be reduced by around 41% from
    the EOQ with the carrying cost of 20 percent
    ANSWERS 15

    • However, even though a change in carrying cost influence the overall


    EOQ, the change will not affect the choice of supplier in this case.
    • Because the preference of supplier does not rely on the carrying cost but to
    the Order Cost per order.
    • Carrying Cost is calculated as Carrying Cost
    percentage x Cost per unit
    • So in this case, we can see the increment in Carrying cost
    percentage will increase the overall Carrying cost for both
    of the supplier.
    17

    QUESTION NO. 10
    How a growing firm could be profitable but have cash flow problem
    • Low profits or losses
    • Over-investment in capacity
    • Too much stock and poor inventory management
    • Allowing customers too much credit
    • Overtrading and growing too fast
    • Seasonal demand
    • Over investment in fixed assets
    18

    QUESTION NO. 11
    Should separate parts inventory into groups according to
    value?

    • It is appropriate to group similar or related parts for inventory


    relating to the same product and for inventory that cannot be
    evaluated separately from other parts in that product line because it
    is not yet considered as finished goods

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