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Andre Candess manages an office supply store. One product in the store is computer paper. Andre knows that 10,000 boxes will be sold this year at a constant rate throughout the year. There are 250 working days per year and the lead-time is 3 days. The cost of placing an order is $30, while the holding cost is $15 per box per year. How many units should Andre order each time to minimize his annual inventory cost?

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Answer:

Annual demand (D) = 10,000 boxes

Ordering cost  (Co)  = $30

Holding cost (H) = $15

EOQ = √2DCo

                H

EOQ = √2  x 10,000 x $30

                    $15

EOQ  = 200 units                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Explanation:

EOQ is a function of square root of 2 multiplied by annual demand and ordering cost per order divided by holding cost per item per annum. EOQ is the quantity of stock that minimises the total inventory cost. In                        this  case, EOQ equals 200 units                                                                  

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