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A product has demand of 4000 units per year. Ordering cost is $20 and holding cost is $4 per unit per year. The EOQ model is appropriate. The cost-minimizing solution for this product will cost ________ per year in total annual inventory costs.
A) $400
B) $800
C) $1200
D) Zero; this is a class C item.
E) Cannot be determined because unit price is not known.
EOQ Model
Economic Order Quantity model is used in inventory management to determine the optimal order size that minimizes the total cost of inventory, including holding costs and ordering costs.
Total Annual Inventory Costs
The comprehensive sum of all expenses associated with holding and managing inventory over a year, including storage, insurance, and obsolescence costs.
Unit Price
The cost per unit of a product or service, which allows for the comparison of costs across different units and quantities.
- Have a clear understanding of the principal inventory issues and how typical inventory models tackle these problems.
- Apprehend the effect that quantity reductions have on ordering dimensions in the context of inventory administration.
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Learning Objectives
- Have a clear understanding of the principal inventory issues and how typical inventory models tackle these problems.
- Apprehend the effect that quantity reductions have on ordering dimensions in the context of inventory administration.
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