Hacker Golf Clubs Problem Hacker Golf Clubs Inc orders the p

Hacker Golf Clubs Problem Hacker Golf Clubs, Inc. orders the putters included in its golf club sets from an outside manufacturer. The company expects demand to be quite constant at 30 sets of golf clubs per month (each set contains one putter). Fixed order costs are $300 and the cost of carrying one putter in inventory for one year is $2.00.

a) What is the optimal number of putters for Hacker Golf Clubs to order?

b) How many times per year, on average, will Hacker Golf Clubs have to place an order for putters if they want to minimize their total controllable costs?

c) New marketing surveys suggest that demand for Hacker Golf Club sets will be increasing in the future, but the company is unsure of exactly how much demand will increase. Hacker’s supplier of putters has already stated that they can only ship batch sizes of 500 or fewer putters without increasing order costs. What is the largest annual demand for golf clubs that Hacker Golf Clubs can satisfy and still minimize their costs while keeping the order size for putters to 500 or less?

Solution

Answer to question a :

Annual demand for Putter at Hacker Golf club =D = 30 / month x 12 months = 360

Fixed order cost = Co = $ 300

Annual cost of carrying inventory for 1 putter = Ch = $2

Thus as per Economic Order Quantity ( EOQ ) model, optimum number of putters to order

= Square root ( 2 x Co x D / Ch )

= Square root ( 2 x 300 x 360 / 2 )

= Square root ( 10800)

= 103.92 ( 104 rounded to nearest whole number )

OPTIMUM NUMBER OF PUTTERS TO ORDER = 104

Answer to question b :

Number of times Hackers golf club has to place an order in a year

= Annual demand / Optimum number of putters to order

= 360 / 104

= 3.46

NUMBER OF TIMES ON AVERAGE HACKERS GOLF CLUB HAS TO PLACE AN ORDER IN A YEAR IS 3.46 TIMES

Answer to question c :

The revised relevant data as follows :

Optimum order quantity = 500

Let the revised annual demand = D1

Fixed order cost ( unchanged ) = Co = $300

Annual cost of carrying inventory for 1 putter = $2

Therefore ,

As per formula for EOQ ,

500 = Square root ( 2 x 300 x D1/2)

Or, 500 = Square root ( 300.D1)

Or, 300.D1 = 500 X 500

Or, D1 = 500 X 500/ 300 = 833.33 ( 833 rounded to nearest whole number )

LARGEST ANNUAL DEMAND HACKERS GOLF CLUB CAN SATISFY = 833 PUTTERS