Question

Question 1862: Demand for an item is 1000 units per year. each order placed costs $10. the annual cost to carry items in inventory is $2 each. part a: 3 points in what quantities should the item be ordered? please round to a whole number. what is the total annual inventory cost (not including purchase cost)?

Answer 1

To determine the quantities in which the item should be ordered, use the economic order quantity (EOQ) formula. The item should be ordered in quantities of 100 units and the total annual inventory cost is $100.

Step-by-step explanation:

To determine the quantities in which the item should be ordered, we need to consider the economic order quantity (EOQ) formula. The EOQ formula is given by:

EOQ = √((2DS)/H)

Where D is the annual demand, S is the ordering cost, and H is the holding cost per unit. In this case, D is 1000 units, S is $10, and H is $2. Plugging in these values into the formula, we have:

EOQ = √((2*1000*10)/2) = √10000 = 100 units

Therefore, the item should be ordered in quantities of 100 units.

To calculate the total annual inventory cost, we can use the formula:

Total Annual Inventory Cost = (EOQ/2) * H

Plugging in the values, we have:

Total Annual Inventory Cost = (100/2) * $2 = $100