Question

the annual demand for a product is 4800 units; each unit costs 70 eachfor orders less than 600 and 68 each for orders of 600 or more. if an order costs 9 to set up, and the annual stock holding costs are 20% of the average value of the stock held, determine the optimum stock ordering policy. what is the cost of this policy?

Answer 1

To determine the optimum stock ordering policy, consider the annual demand, unit costs, setup costs, and annual stock holding costs.

Step-by-step explanation:

To determine the optimum stock ordering policy, we need to consider the annual demand for the product, the cost of each unit, and the costs associated with setting up orders and holding stock.

For orders less than 600 units, the cost per unit is $70. For orders of 600 or more units, the cost per unit is $68.

The total cost of ordering is the sum of the setup costs and the product costs, while the annual stock holding cost is calculated as 20% of the average value of the stock held.

By comparing the costs of different ordering policies, we can determine the most cost-effective option.

Would be the optimal stock ordering policy is to order 600 units or more, as the cost per unit is lower. The total cost of this policy would be the setup cost plus the product cost plus the annual stock holding cost.