Appliance for Less is a local appliance store. It costs this store 320 68 per un

Question

Appliance for Less is a local appliance store. It costs this store 320 68 per unit annualy for storage, insurance, etc. to hold microwave in their inventory Sales this year are anticipated to be 505 units Each order costs $85 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 3 days safety stock (assume 385 days a year)? Round the answer to the whole number our Answer Page S of 8

Explanation / Answer

Annual Demand =505 units Safety stock (3days) = Daily demand *3 days = (505 units/365) *3 =4.15 Safety stock = 4 Units (Rounded off) Economic order Quantity = Square root of (2*Annual Demand *order cost /carrying cost) EOQ =Square root of (2* 505 Units*$85/$20.68)   =Square root of (4151.35) =64.43 Units EOQ =64 Units (Rounded off) Average Inventory held During the year = EOQ/2   + Safety stock   =64 units/2      +4 Units   =32 Units+4 Units =36 Units

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