Answer:
a) Order size= 20,000 units
b) No of orders= 5.
Annual ordering cost = $50
c) Average inventory = 10,000 units
Annual holding cost= $50
Explanation:
To minimize total inventory cost, the company would have to place order equal to the Economic Order Quantity(EOQ)
EOQ = √2× Co× D/Ch
EOQ - economic order quantity , Co- ordering cost per order, Ch- carrying cost per unit per year, D- Annual demand
EOQ =√ (2× 10× 100,000)/0.005= 20,000 units
No of orders to place = Annual demand/EOQ
= 100,000/ 20,000
= 5 orders
Annual ordering cost = 5 × $10 = $50
Average inventory = Minimum stock + order quantity/2
= 20,000/2 = 10,000 units
Annual holding cost = average inventory × holding cost per unit
= 10,000 × 0.005= $50
Order size= 20,000 units
No of orders= 5.
Annual ordering cost = $50
Average inventory = 10,000 units
Annual holding cost= $50
