Question

You have a product with weekly demand of 20 and are open 52 weeks of the year. You pay 30 per unit. It costs you 120 to order and holding costs per year are 25% of the price paid. What is the optimal order quantity that minimizes inventory costs? Round to the nearest whole number

Answer 1

The optimal order quantity that minimizes inventory costs is 30 units.

Step-by-step explanation:

To determine the optimal order quantity that minimizes inventory costs, we need to calculate the Economic Order Quantity (EOQ). The EOQ formula is:

EOQ = sqrt((2 * demand * ordering cost) / holding cost)

Given that the weekly demand is 20, the ordering cost is $120, and the holding cost is 25% of the price paid ($7.50).

Plugging in these values into the EOQ formula:

EOQ = sqrt((2 * 20 * 120) / 7.50) ≈ 30

Rounding to the nearest whole number, the optimal order quantity that minimizes inventory costs is 30 units.