The Goodstone Tire Company produces a brand of tire called the Rainpath. The ann

Question

The Goodstone Tire Company produces a brand of tire called the Rainpath. The annual demand at its distribution center is 12,400 tires per year. The transport and handling costs are $2,600 each time a shipment of tires is ordered at the distribution center. The annual carrying cost is $3.75 per tire.

I got the minimum total annual cost, but I coudln't figure out the optimal order quantity. I got 4147, but that was wrong. Please solve for the Optimal order quantity, round to two places if needed. Thank you!

Explanation / Answer

Annual demand (D) = 12400 tires

Ordering cost (S) = $$2600 per order

Carrying cost (H) = $3.75

Optimal order quantity = sqrt of (2DS / H)

= sqrt of [(2 x 12400 x 2600)/3.75]

= 4146.65

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