Item X is a standard item stocked in a company\'s inventory of component parts.

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 1,800 of item X, which costs $25 each. Storage costs, which include insurance and cost of capital, amount to $14 per unit of average inventory. Every time an order is placed for more item X, it costs $18 a. Whenever item X is ordered, what should the order size be? (Round your answer to the nearest whole number.) Order size b. What is the annual cost for ordering item X? (Round your answer to 2 decimal places.) Ordering cost c. What is the annual cost for storing item X? (Round your answer to 2 decimal places. Holding cost

Explanation / Answer

Annual demand, D = 1800

Unit cost, C = $ 25

Ordering cost, S = $ 18

Storage cost, H = $ 14

a) Order size = SQRT(2DS/H) = SQRT(2*1800*18/14) = 68

b) Ordering cost = (D/Q)*S = (1800/68)*18 = 476.47

c) Holding cost = (Q/2)*H = (68/2)*14 = 476.00

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.