Question

Hammond Supplies expects sales of 117,106 units per year with carrying costs of $2.82 per unit and ordering cost of $4.14 per order. Assuming the level of inventory is stable, what is the optimal average number of units in inventory

Answer 1

Economic order quantity: sqrt( (2 x annual

Sales x ordering cost)/ carrying cost)

EOQ = sqrt(2x117106x4.14)/2.82)

EOQ = 586.38

Optimal average in inventory = EOQ/2

Inventory = 586.38/2 = 293.19

Round up:

Answer: 294 units