Problem: The Bozo Co is reviewing their inventory management techniques and have come up with the following data on their inventory.
a. annual usage of units $125,000
b.ordering costs if $100 per order
c. carrying cost of 20% of the cost of inventory
d. cost of one unit $110
1. What is the economic ordering quantity?
2. How many orders will be placed during the year?
3. What will the average inventory be?
4. What is the total cost of inventory expected to be?
If the company can reduce the ordering costs by $12.50 by the use of automation and the carrying cost by 25% by reduction of insurance costs, what would the answers be to the above questions?