Question

Hammond Suppliers expect sales of 202,801 units per year with carrying costs of $3.08 per unit and ordering cost of $9.33 per order.Assuming the level of inventory is stable, what is the optimal average number of units in the inventory

Answer 1

Answer: 554 units

Step-by-step explanation:

The formula to calculate the optimal average number of units in the inventory will be calculated as:

= EOQ/2

EOQ is the economic order quantity and this will be:

= √(2 × Annual demand × Ordering cost / Carrying cost

= √(2 × 202,801 × 9.33)/3.08

= ✓1228658.5

= 1108.5

Therefore, the optimal average number of units in the inventory will be:

= EOQ/2

= 1108.5/2

= 554.25

= 554 units approximately