In: Operations Management
For a certain item, the cost-minimizing order quantity obtained with the basic EOQ model is 200 units, and the total annual inventory (carrying and setup) cost is $600. What is the inventory carrying cost per unit per year for this item?
For the EOQ model,
Total Annual inventory carrying cost = total annual setup or ordering cost.
So Annual inventory carrying cost = 1/2 * (total annual inventory) = 600/2 = 300.
Average Inventory (Cycle Stock) = EOQ/2 = 200/2 = 100.
Inventory carrying cost per unit per year = 300 / 100 = $ 3 per unit per year.