Thomas Kratzer is the purchasing manager for the headquarters of a large insuran

Question

Thomas Kratzer is the purchasing manager for the headquarters of a large insurance company chain with a central inventory operation. Thomas's fastest-moving inventory item has a demand of 5,850 units per year. The cost of each unit is $105, and the inventory carrying cost is $8 per unit per year. The average ordering cost is $29 per order. It takes about 5 days for an order to arrive, and the demand for 1 week is 117 units. (This is a corporate operation, and there are 250 working days per year). What is the EOQ? 206 units (round your response to two decimal places). What is the average inventory if the EOQ is used? units (round your response to two decimal places).

Explanation / Answer

EOQ = SQRT(2 × Quantity × Cost Per Order / Carrying Cost Per Order)

=SQRT(2*5850*29/8)

= 206

Average inventory is 1/2EOQ= 103

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