Question

a company is planning for its financing needs and uses the basic fixed-order quantity inventory model. what is the total annual cost (t) of the inventory given an annual demand of 22076, order setup cost of $73, a holding cost per unit per year of $5, an order quantity of 487 units, and a cost per unit of inventory of $131?

Answer 1

The total annual cost (T) of the inventory for a company using the basic fixed-order quantity inventory model is calculated based on the annual demand, order setup cost, holding cost per unit per year, order quantity, and cost per unit of inventory.

Step-by-step explanation:

The total annual cost (T) of the inventory for a company using the basic fixed-order quantity inventory model can be calculated using the following components: the annual demand, the order setup cost, the holding cost per unit per year, the order quantity, and the cost per unit of inventory. In this case, the annual demand is 22,076 units, the order setup cost is $73, the holding cost is $5 per unit per year, the order quantity is 487 units, and the cost per unit is $131. To calculate the total cost, we need to account for the order cost and the holding cost.

The order cost is calculated by dividing the annual demand by the order quantity and then multiplying by the order setup cost (Annual demand / Order quantity) * Setup cost. The holding cost is calculated by taking the average inventory level (Order quantity / 2) and multiplying by the holding cost per unit (Average inventory * Holding cost per unit).

Substituting the given values:

• Order Cost = (22,076 / 487) * $73
• Holding Cost = (487 / 2) * $5

The financing for inventory, an essential part of working capital management, includes optimizing these costs to ensure both efficiency in operations and cost control. Proper inventory management can lead to significant cost savings and a stronger financial position for the company.