Diagnostic Supplies has expected sales of 194,400 units per year, a carrying cos

Question

Diagnostic Supplies has expected sales of 194,400 units per year, a carrying cost of $6 per unit, and an ordering cost of $8 per order. (a) What is the economic order quantity? Economic order quantity units (b-1) What is average inventory? Average inventory units (b-2) What is the total carrying cost? (Omit the "$" sign in your response.) Total carrying cost $ Assume an additional 80 units of inventory will be required as safety stock. (c-1) What will the new average inventory be? Average inventory units (c-2) What will the new total carrying cost be? (Omit the "$" sign in your response.) Total carrying cost $

Explanation / Answer

a)Economic order quantity(EOQ) =(2SO/C) =(2*194,400*8/6) =720 units

b)

1.Average Inventory(AV) =EOQ/2 =720/2 =360 units

2.Total carrying cost =AV*C =360*3 =$1,080

c)

1.New average inventory =EOQ/2 +Safety stock =720/2 +80 =440units

2.New total carrying cost =440*3 =$1,320

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