Question

1. The Trektronics store begins each year with 1,959 phasers in stock. This stock is depleted every two months and reordered. If the carrying cost per phaser is $38 per year and the fixed order cost is $890, what is the optimal inventory policy for the company in terms of order size?

1. 645 phasers
2. 980 phasers
3. 327 phasers
4. 742 phasers
5. 1,959 phasers

Answer 1

Optimal inventory is the inventory where the total cost of inventory is minimum. It is calculated as below -

EOQ =

where,

A = Total annual demand

O = Order cost per order

C = Carrying costs per unit per year

Here,

1,959 phasers are used for 2 months, hence the total demand of the year will be -

A =  1,959 * 6 = 11754 phasers

Carrying cost per phaser per year = $38

Order cost = $890 per order

Economic order quantity =

= 742.01

= 742 phasers (approximately)

Hence, Option D is correct.

Hope is helps!