Questions:
Determining the optimal inventory parameters
Lila Battle has determined that the annual demand for number 6 screws is 100,000 screws. Lila, who works in her brother's hardware store, is in charge of purchasing. She estimates that it costs $10 every time an order is placed. This cost includes her wages, the cost of the forms used in placing the order, and so on. Furthermore, she estimates that the cost of carrying one screw in inventory for a year is one-half of 1 cent. Assume that the demand is constant throughout the year.
(a) How many number 6 screws should Lila order at a time if she wishes to minimize total inventory cost?
(b) How many orders per year would be placed? What would the annual ordering cost be?
(c) What would the average inventory be? What would the annual holding cost be?