Question

A bookstore expects to sell 400 calculus textbooks during next year. It costs $2 to store one calculus textbook for one year. There is a fixed of $16 for each order. Find the lot size and the number of orders per year that will minimize inventory costs.

Answer 1

Answer: The order size that will minimize inventory costs will be 80 units

Step-by-step explanation:

The order size which minimizes the balance of holding cost and ordering cost of an inventory is called the economic order quantity.

Given the following;

Demand (D) = 400

Holding cost (H) = $2 per year

Ordering cost (C) = $16 per year

Economic order quantity is given by;

EOQ = Sqrt[(2 × C ×D) ÷ H]

EOQ = sqrt [ (2 × 16 × 400) ÷ 2]

EOQ = sqrt [12800÷2]

EOQ = sqrt[6400]

EOQ = 80 units

Answer 2

The order size that will minimize inventory costs- 80 units

Step-by-step explanation:

The order size that will minimize inventory costs is called the economic order quantity. (EOQ) . It is the order quantity that minimizes the balance of holding cost and ordering cost associated with inventory.

EOQ is determined as follows:

EOQ = √ (2× Co× D)/Ch

Co- Ordering cost per order- $16

Ch- Carrying cost per unit per annum - $2

D- Annual demand- 400

EOQ = √ (2× 16× 400)/2

EOQ = 80 units

The order size that will minimize inventory cost - 80 units