Question

Item X is a standard item stocked in a company's inventory of component parts. Each year the firm, on a random basis, uses about 2,700 of item X, which costs $25 each. Storage costs, which include insurance and cost of capital, amount to $9 per unit of average inventory. Every time an order is placed for more of item X, it costs $6.

a. Whenever item X is ordered, what should the order size be? (Round your answer to the nearest whole number).

b. What is the annual cost for ordering item X? (Round your answer to 2 decimal places. Round your intermediate calculation).

c. What is the annual cost for storing item X? (Round your answer to 2 decimal places. Round your intermediate calculation)

Answer 1

Annual demand = 2,700 C = $25 co To minimiz the total orientany We haw ED Q² exorcogh RX2700x 6 9 √3600 = 60 (a) 60 unils (it) Pronual ordering cast Na of anders x Auder cast oude cestor * Co EoQ 2700 60 $270 (C) Annual cast cel istaning & Eoa Cn 60 $270 D 6 9 N