Question

A bookstore expects to sell 120 calculus textbooks during the next year. It costs $1.50 to store one calculus textbook for one year. To reorder, there is a fixed cost of $10, plus $2.20 for each calculus textbook ordered. In what lot size and how many times per year should an order be placed to minimize inventory costs

Answer 1

Bookstore A

The lot size that minimizes costs = 19

The number of times per year to place an order = 6 times.

Step-by-step explanation:

a) Data and Calculations:

Expected sales units during the next year = 120 calculus textbooks

Cost of storing one calculus textbook for one year = $180 ($1.50 * 120)

Reorder cost = $274 ($10 + $2.20 * 120)

Lot size of order = square root of (2 * 120 * $274)/$180

= square root of 65,760/$180

= square root of 365

= 19 units

Number of times per year to place order = 6 (120/19)