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 5,750 units per year. The cost of each unit is $98, and the inventory carrying cost is $11 per unit per year. The average ordering cost is $31 per order. It takes about 5 days for an order to arrive, and the demand for 1 week is 115 units. (This is a corporate operation, and there are 250 working days per year).

a) What is the EOQ? 180.03 units (round your response to two decimal places).

b) What is the average inventory if the EOQ is used? 90.01units (round your response to two decimal places).

c) What is the optimal number of orders per year? 31.94 orders (round your response to two decimal places).

d) What is the optimal number of days in between any two orders? 7.83 days (round your response to two decimal places).

e) What is the annual cost of ordering and holding inventory? _________ per year (round your response to two decimal places).

f) What is the total annual inventory cost, including the cost of the 5,750 units? _________ (round your response to two decimal? places).

Answer 1

Based on the given data, we tabulate below the formulae and the calculations to derive the answers :

The answers are below :

a) What is the EOQ? 180.03 units (round your response to two decimal places).

b) What is the average inventory if the EOQ is used? 90.01units (round your response to two decimal places).

c) What is the optimal number of orders per year? 31.94 orders (round your response to two decimal places).

d) What is the optimal number of days in between any two orders? 7.83 days (round your response to two decimal places).

e) What is the annual cost of ordering and holding inventory? $1,980.28 per year (round your response to two decimal places).

f) What is the total annual inventory cost, including the cost of the 5,750 units? $565,480.28 (round your response to two decimal? places).