The question is incomplete. The complete question is as follows,
An automobile dealer expects to sell 400 cars a year. The cars cost 11000 each plus a fixed charge of $500 per delivery. If it costs 1000 to store a car for a year, find the order size and the number of orders that minimize inventory cost.
Answer:
EOQ = 20 units
Number of orders = 20 orders
Step-by-step explanation:
To calculate the optimal order size that minimize the inventory costs, we need to calculate the Economic order quantity (EOQ). The formula for calculating EOQ is as follows,
EOQ = √(2 * D * O) / H
Where,
- D is the annual demand
- O is the ordering cost per order
- H is the holding cost per unit per annum
EOQ = √(2 * 400 * 500) / 1000
EOQ = 20 units
The order quantity to minimize the inventory cost is 20 units per order.
The number of orders based on EOQ and annual demand that minimize the inventory cost = 400 / 20 = 20 orders.