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stinkydjinni · Nov 19, 2009, 11:49 AM

Fisk Corporation is trying to improve its inventory control system and has installed an on-line computer at its retail stores. Fisk anticipates sales of 75,000 units per year, an ordering cost of $8 per order, and carrying costs of $12.0 per unit.

a. What is the economic ordering quantity?

b. How many orders will be placed during the year?

c. What will the average inventory be?

d. What is the total cost of ordering and carrying inventory?

I have the answers for everything except for C and the last part of D. What I am looking for is the equation that should be used to complete these. Thanks in advance for the help.

ArcSine · Nov 19, 2009, 12:17 PM

Assuming the goods go out the door in a linear manner, then the average inventory over time would be half of the EOQ. You didn't mention any minimum inventory level (i.e. the "reorder trigger point"), but if there is one, the average inventory over time would be the minimum level + half the EOQ.

The total carrying cost would be the product of the unit carrying cost and the average inventory.

stinkydjinni · Nov 19, 2009, 12:33 PM

I think that not having a minimum inventory is why I am so confused! Can this problem be figured out without that number?

ArcSine · Nov 19, 2009, 01:57 PM

Technically, no, but if no "safety stock" level is provided (either in the question itself, or in some other background info), then the question probably contemplates NO permanent minimum inventory level.

But it's easy to see why that piece of data makes a diff. Suppose my EOQ is 20 units. If I reorder at -0- each time, then my inventory always ranges from 20 to zero, for an average of 10.

But for that same EOQ, if I always reorder at 4, then my inventory level between reorders runs from 24 to 4, for an average of 14.

But as I said, if no minimum is given, I'd assume zero. Better still, check in with your instructor.