Mr. Morgan earns $38,000 a year as a salesperson and a 5% commission on all his sales. He has a mortgage of $910 a month and pays $175 a month for utilities. Mr. Morgan owns a rental property for which he receives $680 per month. Which is a liability?
the yearly salary
the commission
the mortgage
the rental property

1) What quantity should the firm order with each order?

the economic order quantity (EOQ) = √(2SD/H)

S = cost per order = $8D = annual demand = 400 x 12 = 4,800H = holding cost per year = $4 x 50% = $2

EOQ = √[(2 x $8 x 4,800) / $2] = √38,400 = 195.96 ≈ 196 units

2) How many times per year will the firm order?

4,800 units / 196 units = 24.49 times

3) How many days will elapse between two consecutive orders?

240 working days / 24.49 times = 9.8 days

4) What is the reorder point if the firm carries a safety stock of 10 wheels

reorder point = (average daily unit sales x delivery lead time) + safety stock

average daily unit sales = monthly demand / number of days worked per month = 400 / 20 = 20 unitsdelivery lead time = 2 dayssafety stock = 10 units

reorder point = (20 units x 2) + 10 = 50 units