Question

Suppose you purchase from a supplier at $4 per unit a part with which you assemble red widgets. on average, you use 50,000 units of this part each year. every time you order this particular part, you incur a sizable ordering cost of $800 regardless of the number of parts you order. your cost of capital is 20% per year.

Answer 1

The problem is missing some parts:

First, how many parts should you purchase each time you place an order.

H=.2*$4 = $0.80

S= $800

R = 50,000

 

Q = 2SRH

= 2(800) (50000) (.8)

= 10,000 units

 

The second question is how many timer per year will you place orders.

Required order = R/Q

= 50000/10000

= 5 times