# Inventory Decision Model

THe annual demand is estimated to be 15,000 units and is assumed to be constant throughout the year. Each unit costs $80. THe company's accounting department estimates that hits opportunity cost for holding this item in stock for one year is 18% of the unit value. Each order placed with the supplier costs $220. THe company's policy is to place a fixed order for Q units whenever the inventory level reaches a predetermined reorder point that provides sufficient stock to meet demand until the suppliers order can be shipped and received. Develop a decision model.

1. Define the data, uncontrollable inputs, and decision variables that influence total inventory control.

2. Develop mathematical functions that compute the annual ordering cost and annual holding cost based on average inventory held throughout the year in order to arrive at a model for total cost.

3, Implement model on spreadsheet.

What I have so far...

DEMAND RATE (D) = 15,000

COST (C) = $80

INVENTORY CARRYING RATE (I) = 18% PER YEAR

INVENTORY CARRYING COST (Ch) = 1*C = .18*80 = $14.40 PER YEAR

ORDER COST C0 = $220

EOQ =

Q = EOQ = ?2DC0 = 677.0032 = 677

Ch

OPTIMUM NUMBER OF ORDERS

N = D 15000 =22.15657 = 22

Q 677

https://brainmass.com/business/cost-minimization-strategies/inventory-decision-model-455802

#### Solution Preview

See the attached file. Thanks

Inventory Decision Model - Fixed Quantity Model

Data Uncontrollable Inputs

Annual Demand (D) 15000 Annual Demand D

Cost (C) $80 Cost C

Inventory Holding Rate ...

#### Solution Summary

Inventory decision models are examined.