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Academic approach to Inventory Management

An organization uses 4000 boxes of bolts a year. The boxes cost $28 each. Ordering cost is $250 and a holding cost of 15% of the purchase cost oer unit on an annual basis. There is a constant holding of a safety stock of 100 boxes of bolts.

a. the economic order quantity
b. the total cost of carrying the bolts(excl purchase price)
c. the average inventory

Solution Preview

Annual usage/demand, A = 4000 boxes
Price per box, P = $28
Ordering cost, S = $250 per order
Holding cost rate, c = 15% per annum
Safety stock, F = 100 boxes

Inventory carrying cost, ...