Question

As an inventory manager, you must decide on the order quantity for an item. Its annual demand is 679 units. Ordering costs are $7 each time an order is placed, and the holding cost is 10% of the unit cost. Your supplier provided the following price schedule. Quantity Price per Unit 1 - 100 $5.65 101 - 350 $4.95 351 or more $4.55 What ordering-quantity policy do you recommend

Answer 1

The ordering-quantity that should be recommended will be 117 units.

How to calculate the order quantity?

The following can be deduced from the information given:

Demand = 679

Ordering cost = 7

Holding cost = 10%

Ordering quantity will be:

= ✓(2 × Demand × Ordering cost / Holding cost)

= ✓(2 × 679 × 7/0.1)

= ✓13580

= 116.53

= 117

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