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Item X is a standard item stocked in a company's inventory of component parts. Each year the firm, on a random basis, uses about 1,600 of item X, which costs $25 each. Storage costs, which include insurance and cost of capital, amount to $6 per unit of average inventory. Every time an order is placed for more of item X, it costs $12. a. Whenever item X is ordered, what should the order size be

Sagot :

ogorwyne

Answer:

80 quantities

Explanation:

to get the order size of the item, we have to use this formula

[tex]optimal quantity = \sqrt{\frac{2DS}{H} }[/tex]

From this formula above,

D = annual demand = 1600

s = set up cost= 12

h = holding cost = 6

[tex]\sqrt{\frac{2*1600*12}{6} }[/tex]

[tex]\sqrt{6400} \\=80[/tex]

from this solution above, the order size should be 80  quantities

thank you

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