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1. A brewery uses liquid malt in the brewing process, the carrying cost is $0.50 per litre, the ordering cost is $175, and the annual demand is 25,000 litres; calculate the following: 2. The optimal order size; the total annual inventory cost; the number of orders per year; and the order cycle time.
Expert Answer
Answer
1. Optimal order size = (2xannual demandxordering cost / holding cost)1/2
= ( 2x25000x175 /0.5)1/2 = 4183
2. No. of orders = 25000/4183 = 5.97 =6 per year
3.Order cycle time = 12 /6 = 2 months.
4.Total annual inventory cost = 25000×0.5 = 12500
