Optimal Order Quantity for Inventory
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A store (open 24 hours a day, every day) sells 8-roll packs of paper towels, at the rate of approximately 420 packs per week. Because the towels are so bulky, the annual cost to carry them in inventory is estimated at $.50 per 8-roll pack. The cost to place an order is $20. It takes four days for an order to arrive. Currently, Super D has a policy of ordering once each month and for quantities of 1000 packs.
a. Find the optimal order quantity.
b. What is the optimal total ordering cost per year vs. what is that cost with the current policy?
c. How would you determine whether the Store management should continue with this policy or not?
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Solution Summary
The optimal order quantity for inventory is determined in the solution. From this calculation, the expert determines the total ordering cost per year versus what the cost of the current policy is.
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