Question

Thomas Kratzer is the purchasing manager for the headquarters of a large insurance company chain with a central inventory operation. Thomas's fastest-moving inventory item has a demand of 6,050 units per year. The cost of each unit is $103, and the inventory carrying cost is $8 per unit per year. The average ordering cost is $29 per order. It takes about 5 days for an order to arrive, and the demand for 1 week is 121 units. (This is a corporate operation, and there are 250 working days per year). a) What is the EOQ? units (round your response to two decimal places).

b)what is the average inventory if the EOQ is used?... units (round your response to two decimals)

c) what is the optimal number of orders per year?... orders (round your response to two decimals)

d) what is the optimal number of days in between any two orders?... days (round your response to two decimals)

e) what is the annual cost of ordering and holding inventory? ...$per year (round your response to two decimals)

f)what is the total annual inventory cost, including the cost of the 6,050 units?$... per year (round your response to two decimals)

Answer 1

Answers are in BOLD

	Days per year=		250
	Annual demand, D=		6050
	Order cost or setup cost, S		$29.0
	item cost		$103.00
	holding cost per year, H=		$8.00
	Lead time, LT		5.00
Answer a	Economic Order quantity, Q=	squareroot(2*S*D/H)	209.43
Answer c	#orders per year =	D/Q	28.89
Answer b	Average inventory=	Q/2	104.72
Answer d	order cycle=	days per year/orders per year	8.65

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