Question

An automobile dealer expects to sell 900 cars a year. The cars cost $9000 plus a fixed charge of $1000 per delivery. If it costs $500 to store a car for a year, find the order size and the number of orders that minimize inventory costs.

Answer 1

Solution:

Let x = the order size of each time

1. Calculate N(x) , the number of orders that the dealer will place in a year

N(x) = 900 / x

2. Calculate C(x) , the storage cost in the year

C(x) = $\frac{x}{2}$ - 1000 = 500x Dollars

3. Calculate R(x), the reorder cost of each time

R(x) = 9000x + 1000 Dollars