Questions: Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 56,000 units per year, an ordering cost of 2 per order, and carrying costs of 1.40 per unit. a. What is the economic ordering quantity? Economic ordering quantity units b. How many orders will be placed during the year? c. What will the average inventory be? Average inventory units d. What is the total cost of ordering and carrying inventory? Total cost

Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 56,000 units per year, an ordering cost of 2 per order, and carrying costs of 1.40 per unit.
a. What is the economic ordering quantity?
Economic ordering quantity units
b. How many orders will be placed during the year?

c. What will the average inventory be?
Average inventory units
d. What is the total cost of ordering and carrying inventory?
Total cost

Transcript text: Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 56,000 units per year, an ordering cost of $\$ 2$ per order, and carrying costs of $\$ 1.40$ per unit. a. What is the economic ordering quantity? Economic ordering quantity units b. How many orders will be placed during the year? c. What will the average inventory be? Average inventory $\quad \square$ units d. What is the total cost of ordering and carrying inventory? Total cost $\quad \square$

Solution

Solution Steps

Step 1: Calculate the Economic Order Quantity (EOQ)

To find the Economic Order Quantity, we use the formula: \[ EOQ = \sqrt{\frac{2DS}{H}} \] Substituting the values $ D = 56000 $, $ S = 2 $, and $ H = 1.4 $: \[ EOQ = \sqrt{\frac{2 \times 56000 \times 2}{1.4}} = 400 \]

Step 2: Calculate the Number of Orders

The number of orders placed during the year can be calculated using the formula: \[ \text{Number of Orders} = \frac{D}{EOQ} \] Substituting the values $ D = 56000 $ and $ EOQ = 400 $: \[ \text{Number of Orders} = \frac{56000}{400} = 140 \]

Step 3: Calculate the Average Inventory

The average inventory is given by: \[ \text{Average Inventory} = \frac{EOQ}{2} \] Substituting the value $ EOQ = 400 $: \[ \text{Average Inventory} = \frac{400}{2} = 200 \]