Question

A company requires 30,000 units of a product in a single year. It takes $300 for them to place a single order of the product. If the product is carried in inventory, the carrying cost equals 196 of the price of the product on a single unit of the product held in inventory. The product costs $200 per unit and the company works for a total of 300 days in the year. What is the average Inventory level for the product? 50 units 100 units 1500 units 3000 units

please answer all questions In details. Thank you

Answer 1

Annual Requirement/Demand, D = 30000 units

Ordering Cost, S = 300 per order

Product price = 200

Holding cost, H = 1% of price = 200*1% = 2

Q = Optimal Order Quantity = $\sqrt{}$ (2DS/H) = $\sqrt{}$ (2*30000*300/2) = 3000

Average Inventory Level for the product = Q/2 = 3000/2 = 1500

No. of orders placed in the year = D/Q = 30000/3000 = 10

The order quantity that minimizes total inventory costs for the product is the optimal order quantity or the Economic Order Quantity = 3000

The total annual cost is minimal if the EOQ is ordered.