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Fisk Corporation is trying to improve its inventory control system and had installed an online computer...

Fisk Corporation is trying to improve its inventory control system and had installed an online computer at its retail stores. Fisk anticipates sales of 60,500 units per year, an ordering cost of $4 per order, and carrying costs of $1.60 per unit.
a. what is the economic ordering quantity?
b. how many orders will be placed during the year?
c. what will the average inventory be?
d. what is the total cost of ordering and carrying inventory?
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Answer #1

a.Economic order quantity = ((2*annual demand quantity* fixed cost per order)/ annual holding cost per unit)^(0.5)

=((2*60500*4/1.6))^0.5

=550

b.Number of orders = sales/EOQ = 60500/550=110

c.Average inventory level = EOQ/2 = 550/2 = 275

d.

Annual ordering cost = annual demand quantity* fixed cost per order/EOQ

=60500*4/550=440

Annual carrying cost = Average inventory level* annual holding cost per unit = 275*1.6=440

Total cost = Annual ordering cost+ Annual carrying cost = 440+440=880

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