The optimal order quantity is 630 units.
Optimal order quantity is the square root of demand and safety stock divided by housing stock. It means that higher demand results in higher optimal order quantity and lower demand results in lower optimal order quantity.
The expenses incurred by keeping unsold items in storage are known as holding charges. Together with ordering and shortfall fees, these costs make up a portion of the overall cost of the inventory.
The cost of damaged or spoiled goods, as well as that of storage space, labour, and insurance, are all included in a company's holding costs.
Here
Optimal order quantity
[tex]Q=\sqrt{\frac{2DS}{H}}[/tex]
[tex]Q=\sqrt{\frac{2\times 870\times 12\times 40}{0.35\times 6}}[/tex]
Q = 630
[tex]Benefit=\frac{Q}{1500}[/tex]
Benefit = 630/1500
Benefit = 42%
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