Question

You have an annual demand of 494,000 units, inventory carrying costs of 25.8%, a unit cost of $127.22, and an ordering cost of $84.73. Calculate Q*.

Answer 1

The value of Q* is 1597.02.

Explanation:

Given information:

Annual demand = 494,000 units

Inventory carrying costs = 25.8% = 0.258

Unit cost = $127.22

Ordering cost = $84.73

The formula for order quantity is

`Q*=\sqrt{(2DS)/(H)}`

where, D is annual demand, S is setup ordering cost and H is holding or carrying cost.

`Q*=\sqrt{(2* 494000* 84.73)/(0.258* 127.22)}`

`Q*=1597.0169549`

`Q*\approx 1597.02`

Therefore, the value of Q* is 1597.02.