Question

Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 84,500 units per year, an ordering cost of $12 per order, and carrying costs of $1.20 per unit.

Required:
a.What is the economic ordering quantity?
b. How many orders will be placed during the year?
c. What will the average inventory be?
d. What is the total cost of ordering and carrying inventory?

Answer 1

Answer: A) Economic ordering quantity ==$1,300

B)Orders placed during the year= 65 orders

C)average inventory= 650units

D)total cost of ordering and carrying inventory= $1,560

Explanation:

A) Economic ordering quantity =
`√(2 x Annual demand x ordering cost /carrying cost)`

=
`√(2 x 84,500 x 12) /1.20`

=
`√(1,690,000)`

=$1,300

B)Orders placed during the year= Annual demand ÷ economic order quantity

= $84,500 ÷ 1,300 units

= 65 orders

C)average inventory= Economic order quantity ÷ 2

= 1,300 units ÷ 2

=650units

D)total cost of ordering and carrying inventory

Ordering cost = Number of orders × ordering cost per order

= 65 orders × $12

= $780

Carrying cost = average inventory × carrying cost per unit

= 650 units × $1.20

= $780

The total would be = $780 + $780 = $1,560