Question

A company has a star product whose estimated demand is in the attached table

Month	1	2	3	4	5	6
Demand	50	70	30	90	10	100

An order costs $ 150, the cost of the product is $ 75 and the cost to keep in inventory is 15%. For each period, determine the replenishment plan and the associated cost. Using the Minimum Unit Cost method, interpret the purchase order program.

Answer 1

Inventory carrying cost = 75*15% = $ 11.25

As determined, Optimal purchase program is shown below:

Total cost = Total inventory carrying cost + Order cost

= (0+0+0+0+100+0)*11.25+5*150

= $ 1875