Question

Item X is a standard item stocked in a company's inventory of component parts. Each year the firm, on a random basis, uses about 1,600 of item X, which costs $25 each. Storage costs, which include insurance and cost of capital, amount to $6 per unit of average inventory. Every time an order is placed for more of item X, it costs $12. a. Whenever item X is ordered, what should the order size be

Answer 1

Answer:

80 quantities

Explanation:

to get the order size of the item, we have to use this formula

$optimal quantity = \sqrt{\frac{2DS}{H} }$

From this formula above,

D = annual demand = 1600

s = set up cost= 12

h = holding cost = 6

$\sqrt{\frac{2*1600*12}{6} }$

$\sqrt{6400} \\=80$

from this solution above, the order size should be 80  quantities

thank you