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Warren Enterprises expects 20,000 unit sales, has ordering costs of $20 per order, carrying costs of $1.00 per unit, and desires to keep 100 units in safety stock. Assuming level production, what should be their average inventory? a. 200-300 b. 301-400 c. 401-500 d. 501-600

Sagot :

Cricetus

Answer:

Option d (501-600) is the correct answer.

Explanation:

Given:

Unit sales,

= 20,000

Ordering costs,

= $20

Carrying costs,

= $1

Safety stocks,

= 100

Now,

The EOQ will be:

= [tex]\sqrt{\frac{2\times Unit \ sales\times Ordering costs}{Carrying \ costs} }[/tex]

By putting the values, we get

= [tex]\sqrt{\frac{2\times 20000\times 20}{1} }[/tex]

= [tex]\sqrt{800000}[/tex]

= [tex]894.43 \ units[/tex]

hence,

The average inventory will be:

= [tex][Safety \ stock +(\frac{EOQ}{2} )][/tex]

= [tex][100+(\frac{894.43}{2} )][/tex]

= [tex][100+447.21][/tex]

= [tex]547.21[/tex] (lies between 501-600)

Thus the above is the correct response.

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