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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 comma 000 units per year. The cost of each unit is ​$97​, 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 120 units.​ (This is a corporate​ operation, and there are 250 working days per​ year).


A) What is the EOQ?B) What is the average inventory if the EOQ is used?C) What is the optimal number of orders per year?

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Answer:

A) EOQ = 208.56 units

B) Average inventory = 104.28 units

C) Optimum number of order = 28.76 times

Explanation:

Economic order quantity is the order quantity that minimizes the balance of ordering and carrying cost.

Economic order quantity = √2× 29× 6,000/8=208.56 units

Average inventory = Minimum stock level +  Order quantity/2

minimum stock level is not given , hence

Average inventory = 208.56/2 = 104.28 units

Optimum number of order

Optimum number of order = Demand / order quantity

= 6000/208.56= 28.76 times.

EOQ = 208.56 units

B) Average inventory = 104.28 units

C) Optimum number of order = 28.76 times