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# minimize the annual inventory costs

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Northern Distributors is a wholesale organization that supplies retail stores with lawn care and household products. One building is used to store Neverfail lawn mowers. The building is 25 feet wide by 40 feet deep by 8 feet high. Anna Oldham, manager of hte warehouse, estimates that about 60% of the warehouse can be used to store the Neverfail lawn mowers and a small office. Each Neverfail lawn mower comes in a box that is 5 feet by 4 feet by 2 feet high. The annual demand for these lawn mowers is 12,0000, and the ordering cost for Northern Distributors is thinking about increasing the size of the warehouse. The comapny can only do this by making the warehouse deeper. At the present time, the warehouse is 40 feet deep. How many feet of depth should be added on the warehouse to minimize the annual inventory costs? How much should the company be willing to pay for this addition? Remember that only 60% of the total area can be used to store Neverfail lawn mowers. Assum all EOQ conditions are met.

#### Solution Preview

Dear Student,

Thank you for using BM.

EOQ = square root [(2 x demand x ordering cost)/annual carrying cost]
Demand = 12,000
Order cost = \$10 => assumed figure since no information was given
Annual carrying cost per unit = \$5 => assumed figure since no information was given

For the assumed figures, just replace them o get the answer

EOQ = square root [(2 x 12,000 x \$10)/\$5] = 219 units per ...

#### Solution Summary

Help is given to minimize the annual inventory costs.

\$2.19