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Andre Candess manages an office supply store. One product in the store is computer Andre knows that 2, 500 boxes will be sold every quarter of this year. There are 250 working days per year and the lead-time is 3 days. The cost of placing an order is $30, while the holding cost is $15 per box per year. How many units should Andre order each time? 200 100 400 500
Expert Answer
Ordering cost = Number of orders * Order Cost per order
2500 boxes will be sold every quarter of the year, therefore, annual demand = 2500 units * 4 = 10000 units
Economic Order Quantity (EOQ):
EOQ = SQRT(2 × Annual demand × Cost Per Order / Holding Cost Per Order) = SQRT(2 * 10000 * 30/15) = 200
Number of orders = Annual Demand/EOQ = 10000/200 = 50
Thus total ordering cost = 50 orders * $30 per order = $1500
Average Inventory = EOQ/2 = 200/2 = 100
Holding cost per box = $15.
Thus total holding cost = average inventory*holding cost per box = 100 boxes*$15 = $1500
Inventory cost = holding cost+ordering cost
= $3000
Thus, Andre should order 200 units each time.
