Appliance for Less is a local appliance store. It costs this store $22.37 per un

Question

Appliance for Less is a local appliance store. It costs this store $22.37 per unit annually for storage, insurance, etc., to hold microwave in their inventory. Sales this year are anticipated to be 676 units. Each order costs $60. The company is using Economic Order Quantity model in placing the orders.

What is the average inventory held during the year including safety stock if the store insists on a 2 dayssafety stock (assume 365 days a year)?

(Round the answer to the whole number)

***Please provide the formula and show how to calculate the problem step by step.

Explanation / Answer

Formula to Calculate Economic Order Quantity = SQRT(2 × Quantity × Cost Per Order / Carrying Cost Per Order)

Quantity = 676 units, Cost Per Order = $60, Carrying Cost per Order = $22.37

EOQ = SQRT(2 × 676 × 60 / 22.37) = 61 Units

Per day demand = 676 / 365 = 2 Units

Average Inventory = 61 / 2 + 4 = 35 Units.

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