Question

Warren Enterprises expects 20,000 unit sales, has ordering costs of $20 per order, carrying costs of $1.00 per unit, and desires to keep 100 units in safety stock. Assuming level production, what should be their average inventory? a. 200-300 b. 301-400 c. 401-500 d. 501-600

Answer 1

Option d (501-600) is the correct answer.

Step-by-step explanation:

Given:

Unit sales,

= 20,000

Ordering costs,

= $20

Carrying costs,

= $1

Safety stocks,

= 100

Now,

The EOQ will be:

=
`\sqrt{(2* Unit \ sales* Ordering costs)/(Carrying \ costs) }`

By putting the values, we get

=
`\sqrt{(2* 20000* 20)/(1) }`

=
`√(800000)`

=
`894.43 \ units`

hence,

The average inventory will be:

=
`[Safety \ stock +((EOQ)/(2) )]`

=
`[100+((894.43)/(2) )]`

=
`[100+447.21]`

=
`547.21` (lies between 501-600)

Thus the above is the correct response.