Question

Items purchased from a vendor cost $250 each, and the forecast for next year’s demand is 2,000 units. The optimal order size is 100. The firm operates 52 weeks next year and lead time is 3 weeks. It costs $5 every time an order is placed for more units, and the storage cost is $4 per unit per year. What is the total storage (holding) cost for a year?

Answer 1

Answer: 200

Step-by-step explanation:

The total storage cost (holding cost) for the year will be calculated as:

= EOQ/2 × Inventory carrying cost

where,

EOQ = optimal order size = 100

We should note that the storage cost of $4 per unit is the inventory carrying cost.

We then put the values in the formula and this will be:

= EOQ/2 × Inventory carrying cost

= 100/2 × 4

= 200

Therefore, the total storage (holding) cost for a year is 200.