21.22 Effect of different order quantities on ordering costs and carrying costs, EOQ. (30 minutes) Rève Andalou retails a broad line of Spanish merchandise at its Mont-St-Michel store. It sells 26 000 Juanita linen bedroom packages (two sheets and two pillow cases) each year. Rève Andalou pays Juanita, SA, €104 per package. Its ordering costs per purchase order are €72. The carrying costs per package are €10.40 per year. Simone Voirbeau, manager of the Mont-St-Michel store, seeks your advice on how ordering costs and carrying costs vary with different order quantities. Juanita, SA, guarantees the €104 purchase cost per package for the 26 000 units budgeted to be purchased in the coming year. Required 1 Calculate the annual ordering costs, the annual carrying costs and their sum for pur- chase-order quantities of 300, 500, 600, 700 and 900, using the formulae described in this chapter. What is the economic order quantity? Comment on your results. 2 Assume that Juanita SA introduces a computerised ordering network for its customers. Simone Voirbeau estimates that Rève Andalou’s ordering costs will be reduced to €40 per purchase order. How will this reduction in ordering costs affect the EOQ for Rève Andalou on their linen bedroom packages?
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