Question

A liquor warehouse expects to sell 10,000 bottles of scotch whiskey in a year. Each bottle costs $13, plus a fixed charge of $96 per order. If it costs $12 to store a bottle for a year, how many bottles should be ordered at a time and how many orders should the warehouse place in a year to minimize inventory costs

Answer 1

400 bottles should be ordered at a time

25 orders should the warehouse place in a year to minimize inventory cost

Step-by-step explanation:

With regards to the above , we will calculate the economic order quantity

Given that;

Annual demand = 10,000

Cost per order = $96

Holding cost per unit = $12

EOQ = √ 2 × Annual demand × Cost per order / Holding cost per unit

EOQ = √ 2 × 10,000 × $96 / $12

EOQ = 400 bottles

Number of order = Total demand / Economic order quantity

= 10,000 / 400

= 25 orders.

Therefore,

400 bottles should be ordered at a time

25 orders should the warehouse place in a year to minimize inventory cost