Question

The unit price of a product is $20. A manufacturer who needs this product has an inventory carrying cost of 30% of unit value per unit per year, and its ordering cost is $10. Annual demand is 450 units with no variability. How many units should this manufacturer purchase each time? What is the time interval between two consecutive purchases (re-order interval)? What is the frequency of ordering (how many times does it order every year)?

Answer 1

Re-order time 1 month

Step-by-step explanation:

EOQ =
`√(2DS/H)`

D= 450 units

S=10

H=30%

EOQ=
`√(2*450*10/6)` = 39 units

Number of units D/EOQ = 450/39 = 12

re-order time = total period / Number of orders = 1 year /12

= 1 month