Fisk Corporation is trying to improve its inventory control system and has insta
ID: 2744072 • Letter: F
Question
Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 78,000 units per year, an ordering cost of $12 per order, and carrying costs of $1.30 per unit.
What is the economic ordering quantity?
How many orders will be placed during the year?
What will the average inventory be?
What is the total cost of ordering and carrying inventory?
Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 78,000 units per year, an ordering cost of $12 per order, and carrying costs of $1.30 per unit.
Explanation / Answer
a)
Economic ordering quantity:
= (2×Annual requirement×buying cost per order÷Carrying cost per unit)^(1÷2)
= (2×78,000×$12÷$1.30)^(1÷2)
= 1,200 units
b)
Number of orders:
= 78,000/1,200
= 65 orders
c)
Average inventory:
= 1,200/2
= 600 units
d)
Total cost:
= 600×$1.30+65×$12
= $1,560
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