1. If a company\'s order size for an inventory item is 1,000, they carry no safe

Question

1. If a company's order size for an inventory item is 1,000, they carry no safety stock, and experience a smooth depletion rate, what is the average quantity of inventory on-hand? 2. If a company's annual demand is 12,000 units and their order size is 1,000, how many orders will they make per year? dip a er10 3. If the average inventory on-hand is 500 and the cost to carry inventory per unit per year is S$10 (H), what is their annual holding/carrying cost? 4. If a company spends $6,000 per year on processing orders for a certain item and they make 12 orders per year, what is their per order (S) ordering cost? 5. If a company spends $500 to process each order (ordering cost S) and they make 10 orders per year, what is their annual ordering cost?

Explanation / Answer

Average Quantity of inventory on hand = 1000 /2 = 500 Number of order = Annual Demand / order size = 12,000/1000 = 12 Annual holding Cost = (Average Inventory * holding Cost) = (500*10) = $ 5000 Per order Ordering cost =(Spending on processing order / No. of order) = $6000/12 = $500 Annual ordering Cost = Number of order * ordering Cost = 10*500 = $5000

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