Blue Mountain Bike, Inc. (BMBI) makes racing bicycles. It produces 500 bicycles a month. The company purchases the tires for bicycles from Tire4Less, Inc. (TLI). The cost of each tire is $25. BMBI’s inventory carrying cost is estimated to be 20% of the cost of tire and the ordering cost is $48 per order.
For all questions that follow, round your answers to two (2) decimal places.
A- Calculate the EOQ for tires.
B- Calculate the cycle inventory for tires
Expert Answer
A- Annual demand for tires=500*12*2=12000, Ordering cost= $48, Carrying cost= 20% of $25=$5
EOQ=√2*12,000*48/5= √230,400=480
B- Cycle inventory=480/2=240