Howe Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Howe anticipates sales of 126,000 units per year, an ordering cost of $4 per order, and carrying costs of $1.008 per unit.
a. What is the economic ordering quantity?
b. How many orders will be placed during the year?
c. What will the average inventory expected to be?
d. What is the total cost of inventory expected to be?
In the second year, Howe Corporation finds it can reduce ordering costs to $1 per order but that carrying costs will stay the same at $1.008 per unit.
a. Recomputed a, b, c and d for the second year
b. Now compare years on and two and explain what happened