Arizona Health Services (AHS), a large hospital system, dispenses 250,000 bottles of brand name pharmaceuticals annually in one of its hospitals (assume a constant daily demand).
The optimal safety stock, which is on hand initially, is 1,000 bottles. Each bottle costs $10, the holding cost is $.10/unit, and the cost of placing an order with the supplier is $175.
Assume an interest rate of 5% and a lag time of 5 days.
What is the economic order quantity?