Question

A pharmacist wants to establish an optimal inventory policy for a new antiobiotic that requires refrigeration in storage. The pharmacist expects to sell 800 packages of this antibiotic at a steady rate during the upcoming year. She plans to place several orders of the same size spaced equally throughout the year. The ordering cost for each delivery is $16. The carrying costs, based on the average number of packages in inventory, amount to $4 per year for one package. Let x be the order quantity and r the number of orders placed during the year. Find the inventory cost in terms of x and r. Answer: Inventory Cost = Find the economic order quantity that minimizes the inventory cost. (Use the Objective Equation from part 1, find the Constraint Equation, and then apply our Optimization Technique to solve for x.) Answer: x= Find the minimum inventory cost. Answer: Minimum Cost = $

Answer 1

EOQ: 80

order per year: 10

Step-by-step explanation:

We need to solve for the Economic Order Quantity:

`Q_(opt) = \sqrt{(2DS)/(H)}`

Where:

D = annual demand = 800

S= setup cost = ordering cost = 16

H= Holding Cost = 4

`Q_(opt) = \sqrt{(2 * 800 * 16)/(4)}`

EOQ = 80

Orders per year = 800 demand/ 80 order size= 10