Question

What is the inventory average for a company that requires 15,000 units per year, with a cost of $10 per unit for carrying inventory and $200 to place an order, considering a lead time of 2 days?

A) 60 units
B) 150 units
C) 600 units
D) 1500 units

Answer 1

The inventory average for the company is approximately 775 units.

Step-by-step explanation:

In order to calculate the inventory average, we need to consider the economic order quantity (EOQ) formula, which takes into account the annual demand, ordering cost, and carrying cost. The formula for EOQ is:

EOQ = √(2 * Annual Demand * Ordering Cost / Carrying Cost)

Given the information, the annual demand is 15,000 units, the ordering cost is $200, and the carrying cost is $10 per unit. Plugging in these values into the EOQ formula, we get:

EOQ = √(2 * 15,000 * 200 / 10) = √(600,000) = 774.60 units

Therefore, the inventory average for this company is approximately 775 units.