Select Page

EOQ for Thomas KratzerThomas Kratzer is the purchasing manager for the
headquarters of a large insurance company chain with a central
inventoryoperation. Thomas’ fastest moving inventory item has a demand of 6000
units per year. The cost of each unit is $100.00, and the inventory carrying
cost is $10.00 per unit per year. The average ordering cost is $30.00 per
order. It takes about 5 days for an order to arrive, and demand for 1 week is
120 units (this is a corporate operation, there are 250 working days per year).

a. What is the EOQ?
b. What is the average inventory if the EOQ is used?
c. What is the optimal number of orders per year?
d. What is the optimal number of days in between any two
e. What is the annual cost of ordering and holding and
holding inventory?
f. What is the total annual inventory cost, including cost
of the 6,000 units?