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Musictoday LLC Implementing a Periodic Review Inventory System Case Solution

Solution Id Length Case Author Case Publisher
1067 1065 Words (10 Pages) Timothy M. Laseter, Jay Ashton, Vincent Gu Darden School of Business : UV3539
This solution includes: A Word File A Word File

Music Today LLC has been serious issues with respect to ordering the right amount of inventory and after the right interval in order to not only eliminate stock-outs but also to ensure low holding cost. Figures within the EOQ column suggest the recommended amount of quantity, Music Today LLC should order every time. Since, all products are delivered within the case of 25, 50, or 100; therefore, in the third column, figures are rounded off to the nearest order-able value as per the case quantity. The fourth column suggests the number of orders, Music Today LLC should make each year of Night Train’s products. For instance, NT CD should be ordered 17 times a year with each order size of 2,600 units, or 26 cases. Similarly, NT Black Toboggan Hat must be ordered 7 times per year with each order size of 825 units. Finally, the fourth and fifth column represents the total cost for a particular product if the company decides to go forward with the Economic Order Quantity.

Following questions are answered in this case study solution

  1. Economic Order Quantity Calculation

  • Variables’ Key

  • Formulae

  • Calculation

  1. Demonstrating Difference in Total Cost Function with Change in Order Quantity

  • NT CD

  • NT Black Toboggan Hat

  • NT Moon Buggy T-Shirt SS White

  • NT farm Wheel T-Shirt

  • NT Farm Wheel Rolls CD

Case Analysis for Musictoday LLC Implementing a Periodic Review Inventory System

1. Economic Order Quantity Calculation

Variables’ Key

C = Unit Production Cost

A = Annual Demand

Cp = Cost per Order

Ch = Annual Holding Cost of a Unit

P = Retail Price

TC = Total Cost

Q = Optimal Order Quantity

Formulae

Annual Holding Cost = Cost price of the product * 15%

Total cost function = (Unit Cost * Annual Demand) + ((Annual Demand * ordering cost) / EOQ) + (Holding cost * EOQ / 2)

Economic Order Quantity = SQRT ((2 * Annual Demand * Cost per order) / Cost of holding)

Number of Orders per year = Annual Demand / Economic Order Quantity

Calculation

Item Number

Item Description

DEMAND FOR THE YEAR 2003

 

 

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

NTCD06

NT CD

6139

9523

13332

15849

NTCH01TBBK

NT BLACK TOBOGGAN HAT

814

1327

1857

2141

NTCT08SXWH

NT MOON BUGGY T-SHIRT SS WHITE

1659

2731

3842

4704

NTCT10SXWH

NT FARM WHEEL RINGER T-SHIRT SS WHITE

800

1385

1782

2051

NTCD12

NT FARM WHEEL ROLLS CD

3181

5525

7250

8478

NTCT26SXGT

NT OLD SCHOOL LOGO T-SHIRT SS GRANITE

1393

2408

3568

4032

The quarterly demand for all merchandise and CDs from the Night train band is depicted in the above table.

 

 

 

 

 

Annual Demand (A)

Cost ($)

Retail ($)

Holding Cost ($)

CP ($)

44843

9.18

14.95

1.377

100

6139

12.23

29.95

1.8345

100

12936

8.75

24.95

1.3125

100

6018

8.75

24.95

1.3125

100

24434

9.18

14.95

1.377

100

11401

8.75

24.95

1.3125

100

Annual demand along with cost price, selling price, ordering cost, and the annual holding cost of each product is mentioned in the above table. All the above figures have been presented in the case except the annual holding cost of the product, which has been calculated.

 

 

 

Annual Demand / EOQ

 

TC min = sqrt(2 * Ch * A * Cp) + C * A

EOQ = SQRT((2*A*Cp)/Ch)

Case Quantity

Nearest Value for Order as per Case Quantity

Number of orders per year as per EOQ

Total Cost Function

TC min

2552.09

100

2,600

17.25

415,173.57

415,172.96

818.10

25

825

7.44

76,580.82

76,580.77

1403.99

50

1,450

8.92

115,033.70

115,032.74

957.62

50

1,000

6.02

53,915.55

53,914.37

1883.85

100

1,900

12.86

226,898.27

226,898.18

1318.06

50

1,350

8.45

101,489.21

101,488.71

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